Chipotle settles sick customers' claims, avoiding court battles

[September 09, 2016]  By Tom Polansek

CHICAGO (Reuters) - Chipotle Mexican Grill <CMG.N> has agreed to financial settlements with more than 100 customers who fell ill after eating at its restaurants last year, lawyers for the consumers said, as it attempts to move on from a string of food-safety problems.

The burrito chain's strategy of resolving claims out of court, which has not previously been reported, shows it wants to avoid drawn-out public battles over foodborne illnesses that battered the company's stock price and reputation.

Terms of Chipotle's settlements with customers were confidential, lawyers representing them said this week.

Chipotle has been working to revive sales growth after outbreaks of E. coli, norovirus and salmonella linked to its restaurants sickened more than 500 people last year and drove away customers.

On Tuesday, activist investor William Ackman disclosed that his hedge fund had purchased a 9.9 percent stake in the company, saying it was undervalued.

When asked about reported settlements, Chipotle spokesman Chris Arnold said the company "does right by our customers and simply wanted to make things right for people who were affected by any of those incidents." He did not disclose details of settlements.

Chipotle's use of out-of-court settlements is similar to the way burger chain Jack in the Box <JACK.O> handled claims following a deadly E. coli outbreak in the 1990s, said Bill Marler, a lawyer for Marler Clark specializing in food-safety cases. He represented clients sickened in both incidents.

Both fast-food companies also overhauled their food-safety practices and hired consultant Dave Theno to help.

Marler said he had one claim over foodborne illness still to resolve with Chipotle after bringing the company about 100 individual cases related to last year's outbreaks.

A Chipotle Mexican Grill is seen the day before it announces its first quarter results, in Los Angeles, California, United States, April 25, 2016. REUTERS/Lucy Nicholson

The claims, settled over the last six months or so, involved people whose illnesses were verified by medical tests, Marler said. Most were never filed in courts.

"The way that Chipotle has been handling the legitimate claims has been textbook appropriate," Marler said. "They've taken responsibility."

Resolving customers' claims privately allows Chipotle to "try and move forward from a disappointing and embarrassing issue," said Lonny Sweet, chief executive officer for The Connect Group, a marketing agency focused on food.

"The last thing that they want is a battle in the courtroom over paying these people money because that keeps it in the news," said Howard Penney, a managing director for research firm Hedgeye Risk Management, who follows Chipotle.

After settling claims from some customers, Chipotle still faces a federal criminal probe into food-safety matters and a civil lawsuit over allegations it misled investors about its food-safety controls.

(Reporting by Tom Polansek; Editing by Cynthia Osterman)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.