A federal judge in the U.S. District Court-Southern New York this week ruled in favor of Chipotle Mexican Grill Inc., dismissing a lawsuit filed by some of its shareholders after a significant foodborne illness outbreak occurred in 2015.
Shareholders alleged that the company executives did not divulge the seriousness of food illness outbreaks and also misled them in regard to its food safety protocols. It also alleged that company executives committed fraud by selling a significant amount of company shares months before the first outbreak occurred.
"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 foodborne illness outbreaks," Judge Katherine Polk Failla wrote in her decision. "As long as the public statements are consistent with reasonably available data, corporate officials need not present an overly gloomy or cautious picture of current performance and future prospects.”
Failla also dismissed the shareholders’ claims that chief executive officer Steve Ells, former co-chief executive Monty Moran and chief financial officer John Hartung committed fraud by selling $210 million worth of Chipotle stock in the three months leading up to the first outbreak.
“It may be true that defendants sold stock during the class period, in quantities larger than usual and for a profit that was larger than typical,” Failla wrote. “However, these sales were made long before the alleged misstatements that the court has deemed actionable.”
Failla said the shareholders can refile the lawsuit.
The first foodborne illness outbreak occurred in late 2015, when 55 people were infected in 11 states. Twenty-one of those people were hospitalized. A second, smaller outbreak infected five people from three states, one of whom was hospitalized.