A federal lawsuit filed this week by shareholders of Denver-based Chipotle Mexican Grill accuses company executives of failing to establish quality control and emergency response measures to prevent and stop food-borne illnesses that sickened customers and which proved extremely costly to the company.
The complaint, filed on Monday in the U.S. District Court on behalf of plaintiff Sean Gubrickly and and other shareholders accuses Chipotle executives, its board of directors, and managers of unjust enrichment and seeks compensation from Chipotle’s co-CEOs Steve Ells and Montgomery Moran. Eight other executives are also named in the complaint.
Chipotle faces tow other shareholder lawsuits filed related to outbreaks of food-borne illness that caused the company’s stock to lose nearly half of its value.
In addition to damages, the claim seeks corporate-governance reforms and changes to internal procedures to comply with laws and protect shareholders.
The lawsuit referred to an August 2015 norovirus outbreak in Hazel Dell, Washington. In that case, a supervisor ordered an employee, who called in sick, to come to work or find someone to replace here. The employee went to work for four hours while showing visible signs of acute illness, including vomiting.
The lawsuit also claims that officers failed to notify health authorities in California about two Chipotle employees at its Simi Valley restaurant, who suffered “acute gastrointestinal illness” during an August 19 food-borne illness outbreak. The restaurant remained open for two more days, and at least 234 people who dined at the restaurant were sickened by a resulting norovirus outbreak, the lawsuit stated. Chipotle did eventually shut down the restaurant and sanitized it before contacting health officials. However, this was in violation of state laws, the lawsuit says.
Also in August and September, a salmonella outbreak caused by tomatoes sickened approximately 64 people who had dined at 22 Chipotle restaurants in Minnesota. Nine people were hospitalized. And, an E. coli outbreak that began on October 19, made 53 people ill in nine states, and included 20 persons who were hospitalized. Chipotle did not acknowledge the outbreak until November 3, when is closed 43 restaurants in Oregon and Washington states, the lawsuit stated.
In December, Chipotle in public statements said that it had instituted a program to eliminate or mitigate risks of food-borne illness to near zero. Four days later, a norovirus outbreak sickened at least 141 Boston College students who has visited a Chipotle restaurant near the campus. A dozen people were sickened. Additional E.coli outbreaks continued at Chipotle in North Dakota, Kansas, and Oklahoma.
According to the lawsuit, Chipotle failed to implement and enforce a system of effective internal controls to ensure food safety. Chipotle also failed to provide proper over site by not monitoring the company’s compliance with restaurant procedures and federal, state, and local food safety regulations. The company also failed to accurately maintain books and records of restaurant operations and incidents involved food-borne illness outbreaks.
