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And the beef goes on (at Yum)…

You probably remember the big dust-up a few months ago over what exactly was in Taco Bell’s beef. A class action lawsuit was filed in California federal court in late January, 2011 by Alabama-based law firm Beasley, Allen against Taco Bell, a subsidiary owned by Yum Brands (YUM).

Beasley Allen’s petition claimed that Taco Bell’s products that purported to contain “seasoned ground beef” or “seasoned beef” actually contained “taco meat filling;” it then went on to say, “Taco meat filling is not beef. In fact, it does not meet the minimum standards set by the United States Department of Agriculture (‘USDA’) to be labeled or advertised as ‘beef,’ seasoned or otherwise.”

The blogosphere exploded with the story, as did many other news outlets, and customers throughout the country decided not to make a run for the border. Taco Bell wound up taking out full-page ads denying the allegations in Beasley Allen’s petition vociferously, protesting that its food items featuring beef were in fact 88% beef and 12% spices and other edible ingredients.

Less than three months after it filed the suit, Beasley Allen dismissed it on April 18, ostensibly because “changes were made to Taco Bell’s marketing practices.” Speaking on the firm’s behalf, attorney Dee Miles reportedly said, —From the inception of this case, we stated that if Taco Bell would make certain changes regarding disclosure and marketing of its —seasoned beef— product, the case could be dismissed. In another source, Miles was quoted as saying, “We accepted Taco Bell’s invitation to confer with company representatives and share information and ideas about the issues in the case. As a result of the lawsuit, changes in marketing and product disclosure were made by the company, allowing us to dismiss the case.”

We bring this up because in the 10-Q that Yum! Brands filed yesterday, it appears that the three months of questions over Taco Bell’s beef had a bigger negative impact than the company initially predicted (as reported in accounts like this one), when it hoped that its prompt action had “turned the tide” and that the matter would be contained, thereby causing only a “negative, short-term impact.” The company also said that it spent between $3 million and $4 million to defend itself publicly against Beasley Allen’s lawsuit (all reference to which – quite curiously – has completely disappeared from the law firm’s website). In its recent earnings call, Yum’s leaders acknowledged that the lawsuit had a negative impact on sales; however, the new SEC filing warns of more serious losses. After referencing declining operating profits and commodity inflation, the filing adds:

“Taco Bell’s operating profits were significantly impacted in the quarter by the publicity associated with a lawsuit filed in late January 2011 alleging a violation of consumer protection statutes and deceptive business practices by Taco Bell through its advertising that the beef served in its products is ‘seasoned beef’. Such claims were false and the lawsuit was voluntarily withdrawn on April 18, 2011. Nonetheless, Taco Bell experienced a significant reversal in sales trends immediately following the filing of the lawsuit.”

Taco Bell has stated that it may sue Beasley Allen over the incident. So here we are, with the ball in Taco Bell’s court, where it will probably remain until the company can quantify its losses and then decide whether it’s going try to recover them and the cost of its emergency public relations campaign. Whatever the company decides, we bet that it will spend a fair amount of time on the due diligence process before it files a lawsuit. Maybe at some point in the near future it will come to light just how much due diligence Beasley Allen did before it filed the lawsuit that started all this in the first place.

Image source: Like_the_Grand_Canyon via flickr

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