Court Dismisses Shareholder Suit Against Chipotle
A Colorado federal court has dismissed a shareholder derivative action against Chipotle alleging the company’s officers and directors of food-safety oversight failed to take action to prevent outbreaks of foodborne illness. Gubricky v. Ells, No. 16-2011 (D. Colo., order entered June 7, 2017). The plaintiff claimed the defendants had failed to implement and enforce effective food-safety procedures, monitor compliance with food-safety laws or commit necessary resources to store audits and risk assessment after a series of foodborne illness outbreaks. The complaint further alleged that the board failed to take action or offer sick employees paid leave until 2015, seven years after the outbreaks began.
In a shareholder derivative suit, plaintiffs must plead “with particularity” why demanding the corporate board to take corrective action would be futile, the court said, but the plaintiff failed to plead facts specific to each director establishing a “substantial likelihood of personal liability.” The plaintiff must allege that “that the board consciously failed to implement any sort of risk monitoring system or, having implemented such a system, consciously disregarded red flags signaling that the company’s employees were taking facially improper, and not just ex post ill-advised or even boneheaded, business risks,” the court found, but the complaint included “nothing approaching this level of specificity.”
Issue 637
