March 8, 2017 / 7:08 PM / in 8 months

Chipotle lawsuit over food safety, outbreaks is dismissed

NEW YORK (Reuters) - Chipotle Mexican Grill Inc (CMG.N) on Wednesday won the dismissal of a lawsuit claiming it defrauded shareholders about its ability to protect customers from at least seven norovirus, E.coli and salmonella outbreaks that erupted in 2015.

FILE PHOTO: A Chipotle Mexican Grill is seen in Los Angeles, California, U.S. on April 25, 2016. REUTERS/Lucy Nicholson/File Photo - RTSXJLG

U.S. District Judge Katherine Polk Failla in Manhattan said shareholders failed to show that Chipotle improperly concealed the seriousness of food-borne illness outbreaks, the status of a federal probe into an E.coli outbreak, and how its alleged inability to monitor food safety raised the risk of outbreaks.

“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,” Failla wrote in her 47-page 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,” she added.

Chipotle’s share price fell 47 percent in just over five months from its August 2015 peak above $758.

The Denver-based company was linked in November 2015 to a multistate E.coli outbreak, and the next month to a norovirus outbreak that sickened at least 80 Boston College students.

It has apologized for food safety lapses, and offered free and discounted food to regain customers and their trust.

Failla also rejected claims that founder and Chief Executive Steve Ells, former Co-Chief Executive Monty Moran and Chief Financial Officer John Hartung intended to commit fraud by making “highly suspicious” sales of more than $210 million of Chipotle stock in the three months before the first outbreak.

The plaintiffs are led by the Construction Laborers Pension Trust of Greater St. Louis, and Germany’s Metzler Investment GmbH. Their lawyers did not respond to requests for comment.

Failla said the plaintiffs may try to bring their proposed class action again.

A Chipotle spokesman had no immediate comment, saying the company generally does not discuss pending litigation. All of the defendants are represented by the same law firm.

Ells and Moran were co-chief executives from January 2009 until last December, when Moran stepped down.

Last month, Chipotle said sales rose for the first time in five quarters.

Chipotle shares were up 73 cents at $405.63 on the New York Stock Exchange in afternoon trading.

The case is Ong et al v Chipotle Mexican Grill Inc et al, U.S. District Court, Southern District of New York, No. 16-00141.

Reporting by Jonathan Stempel in New York; Editing by Richard Chang

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