Virginia-Based Firm Is At Center of Outbreak
By Lyndsey Layton and Nick Miroff
Washington Post Staff Writers
Sunday, February 15, 2009; A01
Just weeks ago, Stewart Parnell was running a peanut company from a converted garage behind his house outside Lynchburg, Va. His family business supplied ingredients to some of the biggest names on supermarket shelves: Kellogg, Sara Lee, Little Debbie. The federal government was a customer, too, buying his peanuts for poor school children, disaster victims and military troops. He even advised the Department of Agriculture on peanut quality.
Today, Parnell's peanut empire has filed for bankruptcy protection. He is the target of a federal criminal investigation, civil claims are piling up in courthouses around the country and he has been vilified from Georgia peanut fields to Capitol Hill.
He is accused by federal investigators of intentionally sending into the stream of commerce peanut products contaminated with salmonella bacteria. The government has directly linked Parnell's peanuts to nine deaths and 637 cases of salmonella illness in 44 states and Canada, with thousands more illnesses suspected.
The outbreak, which began in September and continues, has triggered the largest food recall in U.S. history. More than 2,000 products made with Parnell's peanuts have been pulled from stores. The entire peanut industry is suffering, as frightened consumers reject peanut products altogether. The cost of the recall to food manufacturers is in the millions and climbing.
"I'd like to ask him, 'How did you think this was going to work out for you?' " Rep. Michael C. Burgess (R-Tex.) said at a congressional hearing on the scandal earlier this week.
Parnell, who initially released public statements that pledged cooperation with government investigators, now refuses to answer questions. His media spokeswoman also does not respond. Friends and family members say they have been asked by his attorneys not to talk to anyone about Parnell.
The question is even more vexing considering the proud, rags-to-riches tale that Peanut Corporation of America featured on its Web site before the world came crashing down around Stewart Parnell.
Parnell and his father, Hugh, ran a business selling peanuts to candy and ice cream makers in 1977 when growers in rural Gorman, Tex., persuaded them to acquire a small roasting facility there. The privately held business struggled at first, generating $50,000 in sales the first year, but the Parnells expanded by supplying bakeries, snack manufacturers and others.
"Have you ever eaten a Nutty-Buddy? How about Trail Mix? Then you've tasted our product," Hugh Parnell told the Lynchburg News & Advance in a 1983 article about the company a year after annual sales had grown to $12 million.
By 1994, the Gorman plant had ballooned to 65,000 square feet, with 95 employees and more than $30 million in yearly sales. Then the Parnells cashed out, selling the company. Hugh Parnell retired; Stewart Parnell and his two younger brothers remained as consultants.
But Stewart Parnell was restless. He bought back the Gorman plant in 2000, then went into business with another investor who had been struggling with a peanut plant in Blakely, Ga. Three years after Parnell took over, revenue at that plant had tripled. The company also began operating a facility in Suffolk, Va.
As the Texas peanut industry moved westward, so did Parnell, shuttering the Gorman plant and opening one in Plainview, halfway between Lubbock and Amarillo. An experienced pilot, Parnell shuttled between the facilities frequently, according to Hugh Parnell Jr., describing his older brother as a "hands on" manager.
Even as PCA was rapidly expanding, a former buyer for a major snack manufacturer said the Parnells found success by operating a low-cost business that relied on the cheapest peanuts they could find. They used minimum wage labor and a bare-bones front office.
"The old man used to look for distressed situations: Someone over-inventoried or had peanuts from last year that they had to move," said David Brooks, who was a buyer for a snack company that refused to purchase from Parnell because of concerns about sanitation and what he called the "culture" of the family business. "He would aggressively look for these, making phone calls, hunting people down. Stewart grew up in that and was the same way."
On three occasions in the mid-1980s, Brooks inspected PCA's Gorman plant to determine whether to buy its peanut products, he said. Each time, he gave the plant a failing grade.
"It was just filthy," said Brooks, who has since retired from the food business. "Dust was all over the beams, the braces of the building. The roofs leaked, the windows would be open, and birds would fly through the building. . . . It was just a time bomb waiting to go off, and everybody in the peanut industry in Georgia, Virginia and Texas -- they all knew."
Victoria Brown, 32, said she worked in PCA's Blakely plant for three months before she was fired two years ago for coming to work late. She earned $6.25 an hour sorting peanuts and picking out rocks, sticks and other debris before washing them. The plant was stiflingly hot, she said, and the roof leaked. "Water would come in when it rained," Brown said.
Water creates conditions for salmonella growth in peanut plants. After federal officials traced the salmonella illness outbreak to the Blakely plant last month, inspectors from the Food and Drug Administration descended and catalogued sanitation problems including a leaky roof, water stains and mold on the walls.
In Texas, state inspectors shut down the Plainview plant Thursday night after finding dead rodents and excrement near the air exchange that ventilated the production room. Internal laboratory tests found salmonella in samples of peanut products taken from that plant last week. Texas officials have ordered a recall of every product made there since Parnell opened it in 2005.
Federal and Texas officials did not even know PCA's Plainview facility existed until after they started investigating the Blakely plant. It was unlicensed and had been uninspected by the government for four years.
If the company was undetected in Plainview, it had a minimal presence in Lynchburg. Parnell ran PCA from a converted garage behind his home in a wooded, upscale suburb. Earlier this week, kayaks and a covered powerboat sat in the driveway next to the two-story building. A sun-faded banner with a picture of a squirrel hangs nearby from Parnell's house reading "Welcome to the Nut House."
Parnell's company kept such a low profile that Lynchburg Regional Chamber of Commerce President Rex Hammond said he had never heard of PCA before the outbreak of salmonella illness. Hammond, who has held his post for 11 years, said chamber records showed the company's membership lapsed in 1991.
"Stewart was never even on the radar screen," said Bert Dodson, Lynchburg's vice mayor, who played high school football with Stewart Parnell. Dodson, chief executive of Dodson Bros. Exterminating, said Parnell kept to himself and "always had a worried look on his face" whenever Dodson would see him around town.
Parnell's younger sister, Beth, is married to Jimmy Falwell, a cousin of the late Rev. Jerry Falwell, who manages Falwell Aviation, a charter company. She, along with her brother Mike, and their father, Hugh, declined to be interviewed.
Hugh Parnell Jr. said he has not worked for PCA for 10 years but continues to do business with the company as a peanut broker. He defended his brother as someone who "would never try to hurt anybody."
"It'd be like General Motors selling a car with no brakes," he said. "How are you going to benefit from that? You'd just hurt your company."
"He didn't want this," said Hugh Parnell Jr. "It's a nightmare."
Still, some of the company's troubles were foreshadowed in 1990, when federal regulators found an unacceptably high amount of aflatoxin -- a toxic mold -- in peanut butter made in the Gorman plant. PCA recalled the products and was sued by one customer, American Candy Co.
A year later, Zachary Confections of Frankfort, Ind., sued PCA, saying the company sold it peanuts contaminated with aflatoxin. The case was later settled.
A bankruptcy lawyer for PCA said Friday that the company's current financial straits are so severe, there is no way it can reorganize and resume business. On the silenced production lines, the discontinued products include jars of peanut butter labeled "Parnell's Pride."