Chipotle class action suits allege brand misled public, investors about food safety measures

by Suzanne Cluckey and Shelly Whitehead, Editors for Networld Media Group

One class action suit has been filed, another is awaiting class certification and a third is in the wings, all alleging that Chipotle and its leadership led food safety officials, investors and the public at large to believe its food safety initiatives were adequate when they were not.

The court actions come after a day of crushing, crisis-level news about events striking the chain's stores in Virginia and Texas that ultimately sent the brand's stock price into a downward spiral, closing Thursday at $356.05, compared with $390.17 at the close Monday before the most recent events became public. 

The beleaguered brand's plight is three-pronged this morning and includes: 

• A norovirus outbreak among diners at a Sterling, Virginia, location of the chain that prompted more than 130 diners to post reports illness on the website Iwaspoisoned.com beginning late last week. The health department for that location verified at least 60 reports of sickness were reported to their offices, with norovirus verified in one of the initial reports. 
• A rodent outubreak at a Chipotle location in the Dallas West End historic districtthat was publicized worldwide on Thursday after a diner's video of several rats in the restaurant was posted to Facebook, with a quote saying, "Rats fell from the ceiling."
• Three class action suits are in process—one filed, one pending class certification and a third still forming its class — according to press releases, alleging that Chipotle and its leadership led investors, the public and food safety officials to believe the chain had met food safety standards when leadership knew otherwise. 

As of early this morning, the brand's leadership had made only a single statement about any of the incidents to any media. That came on Wednesday, when Chipotle Food Safety Director James Marsden wrote in an email to this site, "It is safe to eat at Chipotle." The same statement was disseminated to other media, according to news reports internationally. 

Class actions allege leaders misled public and investors 

Though three class actions are in the works, only one has been filed as of late Thursday by the Pomerantz Law Firm against "Chipotle Mexican Grill, Inc. and certain officers," according to the filing in U.S. District Court in Colorado, where Chipotle is headquartered. 

The class in this suit comprises investors who bought or acquired Chipotle securities. The plaintiffs allege that the brand violated sections 10B and 20A of the Securities Exchange Act of 1934. Specifically, the suit alleges alleges that between Feb. 5, 2016, and July 19, 2017, Chipotle and its leadership "made materially false and misleading statements regarding the company's business, operational and compliance policies." The suit alleges that:

• Chipotle's purported improvements in food safety policies were "inadequate."
• Chipotle's quality controls were not in compliance with applicable consumer and workplace safety regulations and were thus not sufficient to "safeguard consumer and employee health."

As a result, the suit alleges that the brand made claims that were "materially false and misleading at all relevant times."

The suit then recounts the last week's illnesses in Virginia, the rodent infestation in Texas and a Chipotle stock price that has fallen rapidly since these incidents as justification for damages to be awarded to plaintiffs joining the class

The Goldberg lawsuit, which is awaiting class certification, follows along the same lines and even provides some examples of actions the brand undertook to increase its food safety measures systemwide, beginning with Marsden's hiring and implementation of safety measure changes such as: 

"requiring all employees to wash their hands every half hour, mandating that two employees verified that certain ingredients had been immersed in hot water for at least five seconds to kill germs, and using Pascalization to pre-treat food ingredients."

The firm alleges that with these measures, and "along with free food promotions and increased advertising, Chipotle aimed to restore customer confidence in the safety of its food."

A third firm, Bronstein, Gewirtz & Grossman LLC, is still forming its class, according to a news release.  

Additionally this morning, the food safety website Food Safety News confirmed a recent meeting focused on Chipotle food safety measures. In the June 1 meeting, Chipotle Food Safety Director James Marsden and Chipotle Food Safety Advisory Board member Dr. Elisabeth Hagen met with officials at the USDA Food Safety and Inspection Service to update them on the brand's food safety initiatives.

A brand-deafening silence?

As of early Friday morning — almost a week after diners initially reported becoming ill after eating at the chain's Sterling,Virginia, store — Chipotle leadership had maintained a public silence except for the quote from Marsden on Wednesday. 

This silence has muted the brand's voice as a successful player in the industry, while giving way to a high-decibel roar of negative news, which investors have clearly heard.