A Hauppauge olive oil packager and distributor has filed for Chapter 11 bankruptcy protection in federal court in Central Islip as it faces a class-action lawsuit alleging that the company mislabeled its product as "100 percent pure olive oil."
Kangadis Food Inc., which sells olive oil under private labels and its own brands, including Capatriti, Olio Villa, Zorba and Porto, is seeking a bankruptcy proceeding that would allow it to determine any liability related to the lawsuit, settle with creditors and emerge from Chapter 11 while minimizing legal bills.
In a hearing Tuesday, bankruptcy Judge Robert Grossman said he would authorize payments to keep the business operating, said Adam Rosen, an attorney at Silverman Acampora LLP, of Jericho, which is representing Kangadis Food in the bankruptcy case.
"The judge reassured the debtor and the creditors that he was going to approve payments to employees, utilities and other parties," Rosen said.
Closely held Kangadis Food, also known as The Gourmet Factory, estimates that it would cost $750,000 to complete a jury trial on the class action, according to court filings. That would come on top of $1 million in legal costs the company already has spent during the past year.
As of Dec. 31, Kangadis had unaudited assets of about $12.3 million and liabilities of about $6.1 million, including $3.5 million owed to Citibank under a line of credit, according to court papers.
"We are a family business with excellent customer relationships, a highly regarded product line, dedicated, hardworking employees and a solid track record with suppliers, business partners, and our local community," Themistoklis Kangadis, chief executive of Kangadis Food, said in a statement. "Nevertheless, we find it necessary to seek this protection while we continue to vigorously fight a potentially open-ended class action which we believe has no merit."
The class-action lawsuit, filed in U.S. District Court in Manhattan in April by Joseph Ebin and Yeruchum Jenkins, alleges that consumers were overcharged for oils deceptively labeled as "100 percent pure olive oil" when the product actually contained olive pomace, which is chemically processed from olive pits, skins and pulp. One brand of olive pomace oil was selling for 9.8 cents per fluid ounce, while Capatriti was selling for 16.3 cents per fluid ounce, the filing said.
A response filed by Kangadis, however, defended the use of pomace. "Olive pomace oil is olive oil in every way, shape, and form," the court papers said.
A separate lawsuit filed in U.S. District Court in Manhattan by a trade group, the North American Olive Oil Association, in April 2013 charged Kangadis Food with deceptively marketing as "100 percent pure olive oil" an oil containing pomace. In that case, a judge barred Kangadis from continuing to sell products containing pomace as "100 percent pure olive oil." Kangadis reached a settlement in which it did not admit guilt; terms were not disclosed.
Eleven-year-old Kangadis Food, formed by Greek immigrant couple Aristidis and Andromahi Kangadis, employs 51 people. Ownership is split between the founders and their son, Themistoklis Kangadis. A June 2 LexisNexis Corporate Affiliations report said Kangadis Food had annual sales of $5.6 million. The company imports its olive oil from overseas, including Spain and Egypt.
New York State law requires disclosure on labels if other oils are mixed with olive oil.
The adulteration of olive oil has become a cause celebre among food enthusiasts and a law enforcement issue in Italy, where police regularly stage raids to weed out fraud.
In a 2012 New Yorker interview, Tom Mueller, author of "Extra Virginity: The Sublime and Scandalous World of Olive Oil," said olive oil scams go back to ancient times. Cuneiform tablets found in the Syrian city of Ebla described inspectors for the Roman Empire checking olive mills to prevent fraud, he said.
Eryn Balch, executive vice president of the North American Olive Oil Association, which represents major olive oil brands, said that though "there's definitely potential for fraud," spot testing by the association and in-house testing by the companies themselves maintain standards.