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Chi-Chi's asks bankruptcy court for permission to pay hepatitis victims

11/21/2003

By JOE MANDAK / Associated Press

Chi-Chi's, the Mexican restaurant chain embroiled in a hepatitis A outbreak, has asked a bankruptcy court for permission to pay a $500,000 insurance deductible to free up as much as $51 million in insurance to settle claims by sickened customers and employees.

The 16-page request was filed Wednesday in U.S. Bankruptcy Court in Dover, Del., where the 100-restaurant chain filed for Chapter 11 protection on Oct. 8.

Through Thursday, the Pennsylvania Department of Health had confirmed 540 cases of hepatitis A linked to a restaurant at the Beaver Valley Mall, about 25 miles northwest of Pittsburgh. Three customers have died and at least 12 employees are among those infected at the restaurant, which voluntarily closed through at least Jan. 2.

A hearing on the request could occur as early as Friday before U.S. Bankruptcy Judge Charles Case, though Chi-Chi's creditors don't object to the motion because offering the payments and settling potential lawsuits will help the company's financial condition, said Chi-Chi's bankruptcy attorney, William Lobel, of Newport Beach, Calif.

"Everybody's in favor of it. Part of it is that people really got hurt and we really want to start doing the right thing," Lobel said Thursday.

Chi-Chi's, based in Louisville, Ky., has come under fire for not offering to pay medical expenses and lost wages to those infected.

Seattle-based attorney William Marler, who represented several plaintiffs in the multi-million-dollar Jack in the Box E. coli case in 1993, has already filed three lawsuits in the Chi-Chi's outbreak and says he represents 50 others.

"I'm glad to hear it," said attorney David Babcock, an associate of Marler's. "I wonder what took so long. I've talked to a lot of people who've been asking me for two-and-a-half weeks what they're going to do about medical expenses."

Lobel said Chi-Chi's efforts to help those infected were hampered simply because the company needs the bankruptcy judge's permission to make any extraordinary expenditures.

Paying the deductible "is the same thing a company would do automatically in this situation," Lobel said. "That guy Marler is missing the point that in bankruptcy you can't just decide to do it. It's not out of a lack of the company's caring — it's the (bankruptcy) process they're in."

Marler's lawsuits have been stayed because a bankrupt company can't be sued unless the bankruptcy judge allows it.

Marler said he didn't know Chi-Chi's was in Chapter 11 when he filed the initial lawsuits, and others won't be filed unless the bankruptcy judge lifts that stay protecting Chi-Chi's from more litigation.

Chi-Chi's Chapter 11 filing last month wasn't related to the hepatitis A outbreak, which wasn't publicly confirmed by Pennsylvania Health Department officials until Nov. 3. Chi-Chi's listed assets of $50 million to $100 million and debts exceeding $100 million in asking for court protection while it reorganizes.

Lobel said the company simply has cash flow problems because it's in a competitive business. "Every time you turn around there's a new Mexican restaurant opening up somewhere," he said.

But the hepatitis outbreak has further hurt the cash-strapped chain's business, with bad publicity affecting sales at its other 99 restaurants in 17 states, stretching from Minnesota to the Mid-Atlantic region, the court document said.

The bankruptcy filing says Chi-Chi's will set up a toll-free hot line for those infected and hire a consulting company to manage and settle potential claims against it. The company hopes to pay "medical costs, lost wages, and other related reimbursements ... without any admission or determination of liability" to those sickened by the outbreak.

Babcock said he and Marler's clients won't accept the money if the restaurant requires those sickened to sign a release forgoing a lawsuit.

"Every client I talked to has a different situation over three or four weeks, with pain and suffering. There's more than just medical bills and lost wages at issue here," he said.

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Associated Press Writer Mike Crissey contributed to this report.

More on this outbreak: Chi-Chi's Hepatitis A Outbreak

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