Gubricky on behalf of Chipotle Mexican Grill, Inc. v. Ells     

Shareholder Sean Gubricky brought a derivative action on behalf of Chipotle Mexican Grill, Inc. (Chipotle) (plaintiff) alleging Chipotle’s 10-member board, including co-chief executive officers Steve Ells and Montgomery Moran (defendants) failed to properly oversee Chipotle after a series of food-borne illnesses plagued patrons. After a 2008 outbreak, Chipotle adopted a protocol requiring employees to stay home for five days after illness, but only those employed over a year received paid sick leave. Seven years later, six outbreaks hit Chipotle in five months, beginning with three in August 2015. In the interim Chipotle had a risk-monitoring system, and filings showed awareness that Chipotle’s cooking procedures and fresh ingredients potentially increased the risks of food-borne illness. An August 2015 audit report found Chipotle’s internal audit department (IA) far under budget and admitted only partial compliance with risk-assessment standards, but IA believed the standards required details not necessary or appropriate in Chipotle restaurants, and the risk department had reported no material food-safety events. Gubricky alleged the board remained unaware of one August outbreak until December but alleged nothing about the board’s knowledge of the other two or of what caused the outbreaks. The complaint alleged that only Ells participated in preparing allegedly misleading public statements. Chipotle’s Delaware charter exculpated directors from personal liability. The board moved to dismiss for failure to plead demand futility.