Shareholder Suit Against Chipotle Over Foodborne Illnesses Dismissed by New York Court
A New York federal court has dismissed a putative class action against Chipotle Mexican Grill Inc. alleging the burrito chain violated the Securities and Exchange Act of 1934 by making material misrepresentations about the company’s response to food-borne illnesses linked to its stores. Ong v. Chipotle Mexican Grill, Inc., No. 160141 (S.D.N.Y., order entered March 8, 2017). The court has granted the plaintiffs, led by Metzler Investment GmbH and Construction Laborers Pension Trust of Greater St. Louis, leave to amend.
Chipotle’s stock price dropped in 2015 after outbreaks of foodborne illnesses, including norovirus, E. coli and Salmonella, were linked to its stores. As a result, Chipotle profits declined by 95 percent in 2016 as compared to the year before. The plaintiffs alleged that Chipotle and three of its executives misled shareholders and the public in the statements and reports it released about the outbreaks, although Chipotle predicted poor performance in 2016 projections submitted to the SEC.
The court disagreed, holding that plaintiffs failed to show knowledge of wrongdoing, or intention to deceive, manipulate or defraud in the defendants’ public statements. “[It is] not enough for plaintiff to show motives that are common to most corporate officers, such as the desire for the corporation to appear profitable and the desire to keep stock prices high,” the court said. “There is no indication in the complaint that Chipotle’s projections were inconsistent with or did not account for the company’s assessments of the impact of the food-borne illness outbreaks.”
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