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Mild, Medium or Spicy? Unwrapping the Chipotle Investigation

    Client Alerts
  • January 13, 2016

Right before Thanksgiving 2015, the news was replete with discussion of outbreaks of E. coli and potential other viruses at Chipotle restaurants. Information concerning the possible danger in consuming food at the popular restaurant chain spread quickly through social media and various broadcasting outlets. In its latest 8-K filing with the Securities Exchange Commission, Chipotle notified its shareholders that in December it had been served with a federal grand jury subpoena by the U.S. Attorneys’ Office for the Central District of California, in conjunction with the U.S. Food and Drug Administration’s Office of Criminal Investigations.

What’s in the guac?

According to Chipotle’s 8-K filing, the grand jury subpoena requires Chipotle to produce a broad range of documents related to a Chipotle restaurant in Simi Valley, California, that experienced an isolated “norovirus incident” during August 2015. The 8-K does not detail more information on the scope of the subpoena, but does indicate that Chipotle plans to cooperate with the investigation. However, an update on the FDA website indicates that the FDA, CDC and state and local officials are investigating a second, more recent outbreak occurring in other states including Kansas, North Dakota and Oklahoma. Though it is not clear that information will be sought on this more recent outbreak through the course of the grand jury investigation, this update, coupled with media reports of issues in other states, could ultimately mean a much more widespread review of Chipotle’s internal practices relating to food preparation and service. As the government is required to keep grand jury investigations confidential, the breadth of the review could remain a mystery for some time. 

Over the course of the next few months (or longer) Chipotle, as do other companies under similar investigation, may be asked to provide the government with numerous documents and materials, allow review of the books and records of the company, participate in informal interviews with government agents and attorneys, and provide formal testimony to the grand jury, which will ultimately decide if sufficient evidence exists for the government to indict the company and/or any of its officers and employees. Given the government’s renewed focus on individual accountability for corporate wrongdoing (see more information here) Chipotle, and other companies facing current investigation, may expect increased focus on the role of officers and other decision makers in the events that led to the E. coli outbreak.

Take-out Information

Though for many businesses, the presence of E. coli is not an everyday anxiety, the potential of a government investigation poses a much more present concern. Every person and business can learn from the current Chipotle investigation, and the clues that led to the current government inquiry, and incorporate the following practices if the possibility of an issue arises:

  • Investigations Originate in a Myriad of Ways Media reports, shareholder complaints, civil actions, audits, clients, suppliers competitors, and internal whistle-blowers all provide a method by which prosecutors may become aware of, and interested in, a practice of your company. Monitor these sources and implement an action plan if one is triggered. 
  • Create Response Plans Now Every company should consider drafting and internally sharing a response plan for subpoenas, search warrants and catastrophic incidents. These plans should consider notification to counsel and public relations. Often line employees, i.e. receptionists, assistants, etc. are the first to receive a subpoena or word of an important event—make sure that they know how to respond. 
  • Contact Counsel Though part of a good response plan, this point must be emphasized. Investigations may turn on the speed at which informed and experienced counsel is involved and able to provide guidance.
  • Conduct Routine Internal Investigations and Audits A company often has more options if they learn of an issue first. Regularly employ counsel to conduct thorough reviews of sensitive topics.
  • Immediately Preserve Relevant Evidence Not only may the information be helpful, but also there are many unintended consequences of failing to maintain evidence once the potential for an investigation or litigation arises, included escalation of a matter, loss of credibility, additional search warrants and obstruction charges.
  • Parallel Internal Investigations If the possibility of an investigation by the government arises, consider conducting your own parallel internal investigation with counsel to come out ahead of any problems. 

As Chipotle has demonstrated, federal investigations can occur in unexpected ways. The consequences can be dire. Chipotle expects to spend between $14 – $16 million in response to the E. coli outbreak. The incident has resulted in public scrutiny of Chipotle, a 37% drop in stock price and a possible 14.6% drop in sales, causing Chipotle to take initial steps in public outreach, including a letter from founder Steve Ells on its website concerning Chipotle’s food safety plan. 

It is important to remember that interactions with the government will almost always carry serious consequences for a company and its employees if not handled properly from the start.

For questions or for further information, contact Brian Cromwell at 704.335.9511 or Sarah Hutchins at 704.335.6639

Disclaimer: The information contained in this memorandum is intended as a summary of relevant law and is not intended as legal advice.