- within Wealth Management, Environment and Consumer Protection topic(s)
On December 18, 2025, Judge Sherilyn Peace Garnett of the United States District Court for the Central District of California dismissed a putative securities class action against a multinational "fast-casual" restaurant chain (the "Company") and several of its officers ("Individual Defendants" and, collectively, "Defendants") under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5. Stradford v. Chipotle Mexican Grill, Inc., et al., No. 8:24-cv-2459-SPG-JDE (C.D. Cal. Dec. 18, 2025). Plaintiff alleged that Defendants falsely denied complaints from customers that the Company allegedly reduced portion sizes to cut costs and boost profit. The Court dismissed the claims, holding that plaintiff failed to (1) allege Defendants' denials were false or (2) raise a strong inference that Defendants acted with scienter. The dismissal was without prejudice.
Plaintiff alleged that, responding to "inflationary pressure," the Company allegedly reduced portion sizes beginning in 2022 using a "Critical Inventory" metric that tracks high-cost items. Using that metric, the Company allegedly generated reports comparing Company-sanctioned portions to actual inputs sold, with an alleged target variance of 0.6% or less that the Company allegedly "pressured" its restaurants and employees to meet. In 2023, the Company allegedly faced backlash for what customers claimed were smaller portions. Despite Defendants' alleged denials, plaintiff claimed the complaints were accurate, that senior management allegedly instructed restaurants to increase portions in response, and that the Company's cost of sales subsequently rose.
The Court held plaintiff failed to plead that any denial of portion-size reduction was false. First, the complaint did not allege when the Critical Inventory metric or the 0.6% target was instituted, defeating a particularized link to an alleged 2022 portion-size reduction. Second, the confidential witnesses were too "low-level" and their accounts regarding portion reductions too vague and hearsay-laden to support the inference of a company-wide reduction. Third, "viral" customer criticism, standing alone, is legally insufficient to plead falsity. Fourth, allegations that Company management privately instructed portion increases after an "internal investigation" lacked who/what/when particulars required by Rule 9(b). Fifth, the CEO's alleged July 2024 statement about "relook[ing] at our execution . . . with generous portions" and later cost-of-sales increases did not plausibly imply a prior reduction in portion size.
The Court also rejected plaintiff's claim that the Company's disclosures that it could face risks if it failed to respond effectively to social media backlash were misleading. According to plaintiff, this risk disclosure was misleading because it said that the Company may fail to respond when it already had. The Court held that, read in context, plaintiff failed to allege that the risk disclosures were misleading when read in context and in light of the total mix of information to investors, which included plaintiff's own allegations of widespread public attention.
The Court also held that the complaint did not give rise to a strong inference of scienter. Plaintiff's "core operations" theory failed because the complaint did not allege Individual Defendants were exposed to Critical Inventory data or comparable red flags suggesting reduced portions. The Court also found that the confidential witness statements did not tie any Individual Defendant to knowledge of reduced portions, or any instruction to reduce portions, and, at most, suggested reputational-response efforts to "viral" customer complaints. Finally, the Court found plaintiff's stock-sale allegations impermissibly threadbare, noting plaintiff did not identify the dates or amounts of any trades, the percentage of holdings sold by any Individual Defendant, or any deviation from prior trading patterns, nor did plaintiff allege that the trades were outside pre-existing Rule 10b5-1 plans.
Having found no falsity or scienter, the Court dismissed plaintiff's Section 10(b) and Rule 10b-5 claims and, as a result, Section 20(a) claim, granting leave to amend.
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