January 7, 2016 / 12:42 AM / 2 years ago

Chipotle hit with U.S. subpoena over California norovirus outbreak

WASHINGTON/CHICAGO (Reuters) - Chipotle Mexican Grill Inc (CMG.N), under scrutiny for months over outbreaks of foodborne illness across several U.S. states, said on Wednesday it was served with a subpoena in a federal criminal probe linked to norovirus cases in California last year.

A logo of Chipotle Mexican Grill is seen on a store entrance in Manhattan, New York November 23, 2015. REUTERS/Andrew Kelly

Shares of the burrito chain fell nearly 5 percent to $426.67, the lowest in more than two years. That brought their decline to about 30 percent since Oct. 31, when its first E. coli outbreak was reported.

Chipotle in a regulatory filing also projected a 14.6 percent plunge in fourth-quarter same-store sales, compared with a previously estimated 8-11 percent drop. That would be the company's first quarterly same-store sales decline since it went public in January 2006. (1.usa.gov/1JtQlLV)

Chipotle said it received the subpoena in December as a part of a criminal investigation by the U.S. Department of Justice and the Food and Drug Administration. A federal grand jury will decide whether to press charges in the case.

Norovirus is the leading cause of food-related illnesses and outbreaks in the United States. It is highly contagious, often spreading when infected restaurant employees and food workers touch raw ingredients before serving. Food was the suspected source of the California outbreak, a state health department document from September showed.

The latest investigation adds another headache for Chipotle, whose sales have slumped since an E. coli outbreak sickened more than 50 people in nine states in October and November.

Since last fall, Chipotle has had to sanitize restaurants and throw out food while sending ingredients for testing at government labs, as company and public health officials attempt to pinpoint the source of the infections.

The week of Dec. 7, 120 Boston College students fell ill from a norovirus incident at a restaurant in Brighton, Massachusetts. More Chipotle-related E. coli cases were announced late December.

The same month, nearly a quarter of Americans who were aware of the E. coli cases said they were eating Chipotle less often, a Reuters/Ipsos poll found. (1.usa.gov/1JtQlLV)

A Justice Department official declined to comment on the Chipotle investigation. But he said the agency has prioritized food safety and stepped up enforcement, through prosecutions and injunctions to stop problems before they lead to outbreaks.

BROAD RANGE OF DOCUMENTS

The subpoena requires Chipotle to produce a broad range of documents related to an August norovirus incident at its restaurant in Simi Valley, California, which sickened more than 200 people, including 17 workers.

That same month, two California residents sued Chipotle for damages in U.S. court after they said they became sick from eating at the Simi Valley location.

Alyssa McDonald vomited repeatedly and developed “explosive diarrhea,” while another customer said she had to go to a hospital emergency room, court documents showed. The Ventura County Health Department found McDonald’s stool tested positive for norovirus, the lawsuit said.

Doug Beach, a Ventura County health official, said his office was interviewed by the FDA and U.S. Attorney’s office in the fall, whose lines of inquiry focused squarely on Chipotle.

The county turned over files about the incident to federal prosecutors, he added. “It’s unusual to have the federal government involved.”

The federal government’s involvement in a one-restaurant outbreak is surprising since there was no clear interstate element, said Bill Marler, a Seattle-based lawyer who represents Chipotle customers sickened in Simi Valley.

The FDA declined to comment on the investigation.

Chipotle spokesman Chris Arnold declined to discuss most aspects of the probe, but the company said the subpoena covers only the “isolated” Simi Valley case.

Health officials in several U.S. states that had Chipotle-related outbreaks, including New York, Washington, and Oregon, said they had not been contacted by federal investigators.

Days after managers shut down the Simi Valley restaurant, and threw out all remaining food and disinfected surfaces, a health department inspection on Aug. 24 turned up multiple violations, such as unclean equipment and restroom facilities.

On Aug. 27, an inspector found that at least some of the “violations observed on previous inspections have not been corrected.”

Chipotle, one of the restaurant industry’s top performers for years, is struggling to rebound since the wave of illnesses.

In its Wednesday filing, Chipotle said same-restaurant sales for December were down 30 percent, the company said.

Any more incremental bad news, particularly if there is an unfavorable decision from the grand jury, could trigger consideration among shareholders of a management change, Maxim Group analyst Stephen Anderson said.

The company, which also announced a $300 million share buyback in a bid to soothe investors, said it will fully cooperate with the probe.

Reporting Sarah N. Lynch in Washington and Tom Polansek in Chicago, Siddharth Cavale and Subrat Patnaik in Bengaluru, and Sue Horton in Los Angeles; Writing and additional reporting by Eric M. Johnson in Seattle; Editing by Meredith Mazzilli and Richard Chang

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