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North Las Vegas-based company resolving recall fallout

North Las Vegas-based Basic Food Flavors has moved to close an embarrassing episode with settlement of $34.4 million in claims arising from a 2010 recall of salmonella-tainted products.

At a brief Tuesday hearing, U.S. Magistrate Judge Cam Ferenbach approved a deal that pays $11 million up-front to food companies that incurred losses because of the recall. The deal also holds out the potential of more payments over the next five years and precludes the companies from filing separate lawsuits.

Basic Food uses hydrolyzed vegetable protein to make flavoring pastes and powders for food processors. In March 2010 the federal Food and Drug Administration ordered a broad recall after an unidentified processing company detected salmonella in a flavoring batch a month earlier.

Cooking the final product prior to packaging killed the salmonella before people could eat it, according to experts at the time, and no illnesses were reported. Still, the FDA’s recall covered 177 products ranging from Herr’s potato chips to T. Marzetti dips to El Pasado beef taquitos.

An outside administrator in November certified as valid 75 out of the 80 economic damage claims filed by companies hit by the recall. The names of companies that will receive payment was sealed.

Employers Fire Insurance Co. will pay $11 million, the maximum under Basic Food’s liability policy. Any future payments will be determined through a formula tied to Basic Food’s revenues. More than 99 percent of the claimants voted to accept the settlement and payment should be made before July 1.

While some lobbying groups and politicians pounced on the salmonella episode as demonstrating the need for strong food safety laws and regulations, Basic Food officials contend the recall was excessive.

"The whole thing was wrong," said David Wood, vice president of marketing and sales. "There never was any problem in the plants."

He declined to elaborate.

FDA inspections in early 2010 did report finding salmonella in several places at the plant. One report, dated March 4, 2010, said Basic Food "continued to distribute HVP paste and powder products until 2/15/2010," three weeks after an initial laboratory report found salmonella in the factory.

But Anthony A. Palermo, CEO of Wisconsin-based Modern Products Inc. and a part-time Las Vegas resident, said that all the Basic Foods flavorings used in his company’s herbs and spices tested clean.

"We never bought a contaminated lot, but the FDA made us recall anyway," he said. "We lost several million dollars on this."

Employers Fire Insurance initially claimed its policy did not cover recalls, a stance disputed by Basic Food. However, both sides agreed to the settlement’s outline.

"A settlement made too much sense," said Joseph Garin, the attorney representing Basic Food.

Had his client won, he said, the insurance company would have faced defending lawsuits all over the country. But an insurance company victory likely would have driven Basic Food into bankruptcy.

Contact reporter Tim O’Reiley at toreiley@review journal.com or 702-387-5290.

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