Industry News | November 6, 2017 | By Danny Klein | QSR Exclusive Brief

Lawsuit Claims Chipotle Kept Food-Safety Outbreaks Secret

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Chipotle’s shareholders have traveled a wild course in recent months. Now, they’re trying to revive a lawsuit that alleges the fast casual chain knew about E. coli outbreaks dating back to 2014, but decided to keep the information from public knowledge. Attorney David Rosenfeld sent a letter to U.S. Judge Katherine Polk Failla stating that Freedom of Information Act requests to the Centers for Disease Control and Prevention showed an E. coli outbreak involving 12 people in late 2014. Eight were Chipotle customers.

In other words, shareholders are accusing Chipotle of knowing it had a food-safety crisis on its hands long before 42 locations in the Pacific Northwest briefly shut down in 2015, kicking off a 14-state outbreak that led to a yearlong sales downturn and erased around half of Chipotle’s market cap.

The lawsuit was filed last year and dismissed in March. But with the new information, can shareholders resurrect the lawsuit?

Chipotle spokesman Chris Arnold told Benzinga, “It’s important to note that this class action suit has already been dismissed, and this latest activity is nothing more than a last-ditch effort to try to resurrect that suit.”

He added: “Having simply been contacted by CDC to assist public health officials as they were undertaking a routine assessment of possible sources of an outbreak is not necessarily meaningful. We were contacted by CDC regarding an evaluation they were conducting in late 2014 and provided the ingredient tracking information they requested. Based on our supply chain information, there was no clear link between the cases they were looking into and any of our restaurants.”

According to court documents filed last week, the CDC’s records show 14 outbreaks from October 2014–December 2016. The CDC publicly called out six Chipotle-related food safety incidents in the back half of 2015. The shareholders claim that not only did Chipotle know about the problem earlier, but that it failed to inform investors as well as customers.

A spokeswoman with the CDC told Food Safety News it was reviewing the court filing but would not comment at the time.

In the letter, Rosenfeld wrote that “Chipotle was apprised that the late 2014 E. Coli outbreak was plaguing customers from these states [Maryland, Michigan, and Virginia] by no later than December 4, 2014, when it participated in a conference call with the CDC … and state health officials.”

“The late 2014 E. Coli outbreak means that Chipotle experienced fourteen total outbreaks—five Salmonella, six E. coli, and three norovirus—from October 2014 to December 2015, a period spanning only fifteen months,” he added.

The chance of Chipotle recouping its losses since the news broke in 2015 is very unlikely. The stock is trading at nearly a third of the price, and was moving at $275.77 early afternoon Monday. On November 6, 2014, the price hit a high of $647.33 for the day.

In mid-October, following Chipotle’s third-quarter earnings review, shares took a nosedive. They plummeted an additional 14.5 percent the day after the release, a nearly 50–point tumble beneath $300 that marked the first time since March 2013 Chipotle shares fell so low.

“This additional information further demonstrates that defendants Chipotle Mexican Grill Inc., M. Steven Ells, Montgomery F. Moran, and John R. Hartung, knew about, or recklessly disregarded, Chipotle’s foodborne illness outbreaks by at least December 2014 and Chipotle’s deficient ingredient traceability program,” Rosenfeld’s letter to federal court stated.

Chipotle was transparent with a norovirus outbreak earlier in the year when more than 130 customers reported falling ill from norovirus-like symptoms at a location in Sterling, Virginia.

“We’re disappointed that we failed to prevent it from affecting our customers and employees in our Virginia restaurant. We deeply regret that anybody became ill and would like to apologize to those who were affected,” Ells said at the time.