HGT Law Defeats Motion to Dismiss Derivative Lawsuit Against El Pollo Loco
On September 23, 2016, HGT Law announced that, together with Safirstein Metcalf LLP, it had commenced a derivative lawsuit in the Delaware Court of Chancery against certain directors, officers and controlling stockholders of El Pollo Loco Holdings, Inc. for breaches of fiduciary duties in connection with allegedly unlawful insider trading (known as a Brophy claim under Delaware law). See Sept. 23, 2016 Update. The lawsuit alleges that, in May 2015, Defendants sold more than 6 million shares of El Pollo Loco stock (for proceeds of approximately $132 million) just five days after reassuring investors on a conference call as to the reasons for slower than projected growth in the 2015 first quarter, and that the company was still on track to achieve growth targets for the year.
On March 17, 2017, the Hon. J. Travis Laster, Vice Chancellor denied Defendants’ motion to dismiss the derivative lawsuit.
Ruling from the bench, Vice Chancellor Laster denied Defendants’ motion to dismiss the Brophy claim. Vice Chancellor Laster held that “the plaintiffs have been able to plead that it is reasonably conceivable that the executives did give knowingly false and misleading answers about the cause for the slowdown and that they subsequently traded, along with the controlling stockholder, before the full information was known by the market.” Vice Chancellor Laster noted that he was able to make such a determination because Plaintiffs obtained books and records pursuant to Section 220, so that the court was able to compare Defendants’ public statements with information that El Pollo Loco’s board had just before the public statements were made.
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