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Publisher’s Platform: Chipotle – Parallels with Jack-in-the-Box and Odwalla

Opinion

The more things change the more things stay the same.

1000px-jack_in_the_box_2009_logoFriday a Chipotle stockholder brought suit against the company, filing a complaint in the US District Court for the Southern District of New York. In the complaint, the investor accused Chipotle of failing to disclose that its “quality controls were inadequate to safeguard consumer and employee health.” According to the complaint, Chipotle leadership in “their statements regarding quality control and quality of ingredients were demonstrably false and have posed a tremendous safety hazard to their patrons…. As a result, investors in the company suffered significant losses when these health concerns were raised by regulators.”

Since October, Chipotle’s shares have gone down over 35 percent. According to the complaint, “as a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.” The stockholder is “seeking to recover damages caused by defendants’ violations of the federal securities laws.”

In 1993 a similar lawsuit was filed against Foodmaker Inc., alleging that investors lost millions of dollars in stock value following the E. coli outbreak at Jack-in-the-Box restaurants. The suit alleged that company officials touted their quality-control measures and high cooking standards when they initially offered stock and solicited investors in March 1992. In reality, the suit claimed, the company had standards below average for the industry.

Foodmaker’s stock lost about a third of its value in January 1993, after Jack-in-the-Box was found to have served hamburgers tainted with the E. coli bacteria. Four children died and over 600 people became sick in five Western States. The stock dropped from $13.88 a share before the crisis to $9.50 a share after.

During the Jack-in-the-Box we worked closely with counsel for the shareholders in prosecuting civil claims on behalf of the victims of the E. coli outbreak.

odwalla logoAlso last week, Chipotle announced in an 8K securities filing that it has been hit with a federal grand jury subpoena after a norovirus outbreak in California. The subpoena is part of an investigation by the U.S. Food and Drug Administration’s Office of Criminal Investigations. According to Chipotle, it is required to hand over documents pertaining to its restaurant in Simi Valley, California where the norovirus outbreak occurred in August that sickened over 200.

Apparently, the U.S. Attorney’s Los Angeles office that is leading the investigation is a branch that specializes in environmental and community safety crimes. According to press reports, the head of the unit, Joseph Johns, has a track record for working on health and environmental crimes, including a 1998 case against juice maker Odwalla, which pleaded guilty and was fined $1.5 million in connection with an E. coli outbreak that killed one person and sickened dozens.

We shared documents that we secured in the civil litigation with Mr. John’s investigators.

Like I said, the more things change the more things stay the same.

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