Case 1:16-Cv-00141-KPF Document 49 Filed 06/17/16 Page 1 of 127
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Case 1:16-cv-00141-KPF Document 49 Filed 06/17/16 Page 1 of 127 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x SUSIE ONG, Individually and on Behalf of All : Civil Action No. 1:16-cv-00141-KPF Others Similarly Situated, : : CLASS ACTION Plaintiff, : : AMENDED COMPLAINT FOR vs. : VIOLATIONS OF THE FEDERAL : SECURITIES LAWS CHIPOTLE MEXICAN GRILL, INC., M. : STEVEN ELLS, MONTGOMERY F. : DEMAND FOR JURY TRIAL MORAN and JOHN R. HARTUNG, : : Defendants. : x Case 1:16-cv-00141-KPF Document 49 Filed 06/17/16 Page 2 of 127 TABLE OF CONTENTS Page NATURE OF THE ACTION ..........................................................................................................1 JURISDICTION AND VENUE ......................................................................................................6 PARTIES .........................................................................................................................................7 CLASS ACTION ALLEGATIONS ..............................................................................................11 PLAINTIFFS’ ALLEGATIONS ARE SUPPORTED BY INFORMATION PROVIDED BY FORMER EMPLOYEES ........................................................................................................13 SUBSTANTIVE ALLEGATIONS ...............................................................................................14 Chipotle and Its Focus on “Food With Integrity” ..............................................................14 Chipotle Failed to Adequately Disclose Critical Changes to Its Food Safety Practices and that Such Changes Greatly Increased the Risk of the Company Experiencing Food-Borne Illness Outbreaks .....................................................................16 Defendants Did Not Disclose that Chipotle Failed to Adequately Monitor and Enforce Its Food Safety Programs, Which Substantially Increased the Company’s Exposure to Food-Borne Illness Outbreaks .......................................................................20 Chipotle’s Deficient Food Safety Practices Led to at Least Seven Food-Borne Illness Outbreaks from July to December 2015, Which Chipotle Attempted to Conceal from The Public ...................................................................................................23 The July E. Coli Outbreak .....................................................................................23 The August Norovirus Outbreak in Washington ...................................................25 The August Norovirus Outbreak in California ......................................................27 The August Salmonella Outbreak ..........................................................................30 The October E. Coli Outbreak ...............................................................................37 The November E. Coli Outbreak ...........................................................................54 The December Norovirus Outbreak .......................................................................55 Chipotle Lacked a Reasonable Basis to Represent to Investors on November 10, 2015, that Health Officials Believed There Was “No Ongoing Risk” Related to the October E. Coli Outbreak .............................................................................................56 - i - Case 1:16-cv-00141-KPF Document 49 Filed 06/17/16 Page 3 of 127 Page Defendants Failed to Disclose the Negative Impact Caused by the Numerous Food-Borne Illness Outbreaks Experienced by Chipotle During the Class Period When Reporting Chipotle’s 3Q15 Financial Results and Lacked a Reasonable Basis at that Time to Provide Financial Guidance for 4Q15 and FY16 ............................65 Materially False and Misleading Statements and Omissions During the Class Period .................................................................................................................................68 Chipotle Admits the CDC’s Investigation into the October E. Coli Outbreak Is Ongoing and Implements a Remediation Plan Consisting of New Food Safety Practices .............................................................................................................................75 The Company Receives a Criminal Subpoena Relating to the August Norovirus Outbreak in California .......................................................................................................82 Post Class Period Events ....................................................................................................84 Defendants Failed to Comply with Items 303 and 503......................................................92 ANY PURPORTED RISK WARNINGS WERE INADEQUATE ..............................................96 ADDITIONAL SCIENTER ALLEGATIONS ............................................................................101 NO SAFE HARBOR ...................................................................................................................113 APPLICATION OF PRESUMPTION OF RELIANCE: THE BASIC AND AFFILIATED UTE PRESUMPTIONS ...............................................................................................................114 LOSS CAUSATION/ECONOMIC LOSS ..................................................................................116 COUNT I .........................................................................................................................119 For Violations of §10(b) of the Exchange Act and Rule 10b-5 Against All Defendants ...........................................................................................................119 COUNT II ........................................................................................................................122 For Violations of §20(a) of the Exchange Act Against the Individual Defendants ...........................................................................................................122 PRAYER FOR RELIEF ..............................................................................................................123 JURY DEMAND .........................................................................................................................124 - ii - Case 1:16-cv-00141-KPF Document 49 Filed 06/17/16 Page 4 of 127 Lead Plaintiffs Metzler Investment GmbH and Construction Laborers Pension Trust of Greater St. Louis (collectively, “Lead Plaintiffs” or “Plaintiffs”), on behalf of themselves and all other persons similarly situated, by Lead Plaintiffs’ undersigned attorneys, for Lead Plaintiffs’ amended complaint for violations of the federal securities laws against Defendants (defined below) (the “Amended Complaint”), allege the following based upon personal knowledge as to Lead Plaintiffs and Lead Plaintiffs’ own acts, and upon information and belief as to all other matters based on the investigation conducted by and through Lead Plaintiffs’ attorneys, which included, among other things: (i) a review of United States Securities and Exchange Commission (“SEC”) filings by Chipotle Mexican Grill, Inc. (“Chipotle” or the “Company”); (ii) a review of Chipotle regulatory filings and reports; (iii) a review of securities analysts’ reports and advisories about the Company; (iv) a review of press releases, conference call transcripts, media interviews, and other public statements issued by the Company; (v) a review of media reports about the Company; (vi) a review of over 20,100 pages of documents produced to counsel for Lead Plaintiffs by the Washington State Department of Health, the Seattle & King County Public Health Office, the Minnesota Department of Health, and the Ventura County Environmental Health Division in response to Freedom of Information Act (“FOIA”) requests; (vii) a review of the allegations contained in pleadings in numerous personal injury lawsuits filed in various federal courts involving Chipotle during the Class Period (defined below); (viii) a review of deposition transcripts and declarations in lawsuits in various federal courts involving Chipotle; (ix) a review of findings, announcements and updates issued by local, state and federal governmental agencies relating to the numerous food-borne illness outbreaks experienced by Chipotle during the Class Period; (x) discussions with state and local health and safety regulators with personal knowledge of the food-borne illness outbreaks experienced by Chipotle during the Class Period; (xi) interviews with former Chipotle employees; and (xii) consultations with experts in the food processing and safety industry. Lead Plaintiffs believe that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION 1. This is a federal securities class action on behalf of all purchasers of the common stock of Chipotle between February 5, 2015 and January 5, 2016, inclusive (the “Class Period”). Case 1:16-cv-00141-KPF Document 49 Filed 06/17/16 Page 5 of 127 Lead Plaintiffs seek to pursue remedies against Chipotle and certain of its senior executives and/or directors under §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”) and Rule l0b-5 promulgated thereunder (17 C.F.R. §240.10b-5). 2. Chipotle is a publicly-traded fast-food restaurant chain that directly operates more than 1,900 Mexican food Chipotle restaurants in the United States. 3. This case concerns materially false and misleading statements and omissions