Law Street Media

2nd Circuit Affirms Dismissal of Fraud Case Against Chipotle

On August 12, a panel of Second Circuit Judges affirmed that the Southern District of New York properly dismissed a securities fraud case against Chipotle Mexican Grill, Inc., under FRCP 12(b)(6), and that the plaintiff-appellants were not entitled to relief under FRCP 59(e) and 60(b).  An argument was previously held back in December of 2019.

Plaintiff-appellants Metzler Investment GMBH and Construction Laborers Pension Trust of Greater St. Louis alleged in an amended class-action complaint alleging violations of federal securities laws by defendant-appellees.  The District Judge Katherine Polk Failla dismissed the amended complaint without prejudice for failure to state a claim, and after a second amended complaint was filed, the defendant-appellees moved to dismiss that as well, which the judge granted. In their opposition filings, the plaintiffs requested to file a third amended complaint, but the court denied the request. As a result, the plaintiffs moved under FRCP 59(e) and 60(b). The court denied the motion on the ground that the plaintiffs “were not entitled to relief under Rules 59(e) and 60(b) and, in the alternative, that amendment would be futile.” 

The plaintiffs purchased stock in Chipotle between February 2015 and February 2016. Due to outbreaks of food contamination and health issues over Chipotle’s food that began in 2014, by quarter four of 2015, there were significant adverse financial effects. In its Form 10-K for the fiscal year ending December 31, 2015, Chipotle stated that “significant publicity regarding a number of food-borne illness incidents associated with Chipotle restaurants . . . had a severe adverse impact on our sales and profitability.” Additionally, restaurant sales declined 14.6% in the fourth quarter of 2015 and approximately 36% in January 2016. The complaint alleged “that the defendants made materially false and misleading statements regarding the company’s quality controls that artificially inflated Chipotle’s stock price.” 

The main argument in the plaintiffs’ appeal is that the district court in denying their post-judgment motion for leave to amend applied an incorrect legal standard, and “erroneously” decided that the filing was “futile.” However, Second Circuit Judges—Pooler, Sack, and Hall—found the district judge used the proper legal standard. Specifically, the district court “denied the plaintiffs-appellants’ motion principally because it concluded that they failed to proffer any newly discovered evidence that would entitle them to relief under Rule 59(e) or 60(b).” The court recognized there was new evidence, but the result would be the same due to the amendment being futile. Furthermore, the Circuit Judges held that the district court did not abuse its discretion in denying relief, because although it seems self-evident a plaintiff with endless opportunities could eventually state a claim, but the federal rules and policies “do not permit such limitless possibilities.” 

The plaintiff-appellants were represented by Robbins Geller Rudman & Dowd and Motley Rice.  Chipotle was represented by Latham & Watkins and Messner Reeves.

Exit mobile version