Jensen Farms, the Holly, CO, firm that was at the center of the Listeria outbreak tied to cantaloupes last year, filed for Chapter 11 bankruptcy protection May 25. The Listeria contamination and outbreak, which was discovered last September and subsequently linked to Jensen Farms, resulted in at least 32 deaths and a reported 146 illnesses in 28 states, according to the U.S. Centers for Disease Control & Prevention.

James Markus of Markus Williams Young & Zimmermann LLC, the Denver-based attorney handling the bankruptcy for Jensen, told The Produce News that the bankruptcy proceedings were filed in concert with the majority of the attorneys representing the 50 or so claims filed against the firm because of the illnesses and deaths resulting from the Listeria contamination.

Mr. Markus indicated that it was determined in negotiations that this was the best way to proceed to produce the largest pool possible to settle those claims in the quickest fashion. During these proceedings, the attorney said a pool will be formed that will include $2.5 million in funds from Jensen's general liability insurer, Travelers, as well as $2 million from other companies involved in the case. He added that it is the expectation of Jensen Farms that the bankruptcy and the creation of the pool will release the firm from any further liability in relation to this foodborne illness outbreak.

Bill Marler of Marler Clark, a Seattle-based attorney who represents a majority of plaintiffs, concurred with Mr. Markus's characterization of the situation. He said that he represents 39 of the 45 claimants known to him. Mr. Markus said about 50 claims have been filed.

Mr. Marler said the initial pool should be close to $5 million and will include liability insurance money from Jensen Farms, Pepper Equipment Co. (the supplier of the washing equipment used on the cantaloupes) and Bio Food Safety, a third-party auditing firm that conducted the audit that gave Jensen Farms a clean bill of health in the same general time frame as the Listeria outbreak occurred.

In exchange for creating the trust fund, Mr. Marler said that each of those three companies would be released from further liability if the court approves. He said it is expected that the court would approve the establishment of the trust fund and appoint a special master to evaluate each claim and place a value on it.

Mr. Marler said that two other firms - Primus Labs, which hired Bio Food Safety, and Frontera Produce, the distributor of Jensen's cantaloupes - are also involved in discussions and may also join the parties funding the trust fund. However, he said those two companies have other issues, as they are involved with the retailers who sold the product to consumer and who the plaintiffs' attorneys are hoping to bring into the case.

Firms such as Frontera typically have an indemnity agreement with retailers that holds the distributor responsible in the event of liability caused by the product that they sold to the retailer, according to Mr. Marler.

Mr. Marler explained that at the end of the day there is not enough money from the five aforementioned firms to settle all the potential claims.

"I have more than 20 years experience, and I can make a pretty good guess about how much money we are talking about," he said.

For one reason or another, he said that it is doubtful that all 146 victims will file lawsuits. In fact, he said the 50 or so that are currently filed represent the vast majority of the cases that will come forward. He estimated that those 50 plaintiffs create about a $75 million problem.

He estimated that the five named firms could create a pool of about $20 million, with the bulk of that coming from liability insurance. He said when the trust fund is accumulated and stacked up against the claims, "we are going to sit down with the retailers and see how they can help."

Mr. Marler said that is not an uncommon occurrence, and in fact he predicted that the various parties, including the retailers, "will do the right thing" and contribute to the trust fund so that the victims can be made whole. The attorney said that about 70 percent of the cantaloupes that caused the illnesses and deaths were purchased at either a Walmart store or one of the chains owned by The Kroger Co. A few smaller chains and mom-and-pop grocery stores accounted for the purchases in the other 30 percent of the cases.

In the Jensen Farms bankruptcy proceedings, the firm reported $4.8 million in revenues in 2011; $2.1 million in current assets; $2.5 million in liabilities; and $1.6 million in payments outstanding from Frontera Produce.

Jensen Farms is a fourth-generation operation owned by brothers Eric and Ryan Jensen. After the outbreak was traced back to the farm, the Food & Drug Administration investigation blamed the operation for failing to store cantaloupes properly after they were harvested and for altering its cleaning method, including eliminating chlorination, which the FDA said led to the growth of the Listeria bacteria.

Mr. Markus said the future of Jensen Farms would be determined after the bankruptcy proceedings are concluded. He said the firm's largest secured creditor -- its bank -- will have a lot to say about whether the company reorganizes or liquidates. He said that most of the company's assets are owned by the bank with very little equity, indicating that it might be the bank's decision to let the company reorganize.

"If they liquidate, there won't be anything left to reorganize," he said.

While the victims in this case have first claim on Jensen's liability insurance, they are behind the secured creditor when it comes to the liquidation of assets. Mr. Markus indicated that if a liquidation of assets occurs, the bank would most likely be entitled to all of those funds.