Legal problems continue to mount for popular burrito chain

| Jul 20, 2016 | Business Litigation

It’s been a difficult year for Chipotle Mexican Grill Inc., the ubiquitous burrito chain long known for its dedication to using fresh and healthy ingredients. That’s because in the wake of a food safety scandal that saw customers across the nation sickened by norovirus and E. coli traced to contaminated foodstuffs, the company’s stock price fell by almost 50 percent.

In addition, Chipotle was hit with multiple civil lawsuits filed by customers who fell ill, a federal class action shareholder lawsuit and a subpoena in a federal criminal investigation. While it may seem as if things couldn’t get any worse, the company was recently named in a shareholder derivative action filed in its home state of Colorado.

For those unfamiliar with a shareholder derivative action, it’s essentially a lawsuit in which a plaintiff-shareholder sues on behalf of a corporation, typically in a bid to defend it from the actions of corporate executives. If the plaintiff-shareholder prevails, they will not secure any of the proceeds, rather the money goes directly to the corporation.

The shareholder derivative action filed against Chipotle levels some of the following accusations:

  • Board members and executives, acting on inside information, unjustly enriched themselves by hundreds of millions of dollars by selling off significant amounts of artificially inflated stock just prior to the illness outbreaks.
  • Board members and executives repurchased stock at an inflated price, paying $84 million more than it was actually worth.
  • Board members and executives withheld information from shareholders about “subpar food-safety practices” and, by doing so, ensured that the price of common stock would not be “based upon truthful and accurate information.”  

It will be interesting to see how this — and all the other legal actions — affect Chipotle’s bottom line in the coming months. Stay tuned for updates.

Consider speaking with an experienced legal professional to learn more about your options if your business has been hit with a shareholder action or served with papers regarding an ongoing business dispute.