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Connaughton v. Chipotle Mexican Grill, Inc.

New York Court of Appeals

May 2, 2017

Kyle Connaughton, Appellant,
Chipotle Mexican Grill, Inc., et al., Respondents.

          Daniel J. Kaiser, for appellant.

          Jean-Claude Mazzola, for respondents.


          RIVERA, J.

         Plaintiff Kyle Connaughton appeals, as limited by his brief, from an Appellate Division order affirming the dismissal of his complaint under CPLR 3211(a)(7) for failure to state a cause of action for fraudulent inducement against defendants Chipotle Mexican Grill and its Chief Executive Officer, Steven Ells. We affirm because plaintiff failed to adequately plead compensable damages.


         Plaintiff is a well-known chef who, prior to his employment with Chipotle, was developing a concept for a ramen restaurant chain. Plaintiff prepared a business plan and actively pursued potential buyers until Ells showed interest in the concept. Plaintiff then turned his efforts to developing ideas specifically for Chipotle's restaurant platform. Thereafter, Ells offered to purchase the concept, and plaintiff, with the assistance of legal counsel, negotiated an agreement whereby he would work on the restaurant design for Chipotle with the title of Culinary Director based out of New York City.

         The agreement expressly states that plaintiff's employment was at-will, and that both plaintiff and Chipotle had the right to terminate the contract at any time without notice or cause. The agreement details plaintiff's compensation. Chipotle agreed to pay plaintiff an annual salary of $150, 000, and monthly car and housing allowances totaling $2, 700. Plaintiff was also eligible for a merit bonus, increased salary, and a defined number of shares in Chipotle stock, which vested based on years of uninterrupted employment. Some stocks were scheduled to vest after two years, and another set would vest after plaintiff reached his three-year anniversary with Chipotle.

         Plaintiff diligently worked to develop the ramen restaurant concept with Chipotle, and traveled widely to perfect his ideas and to purchase equipment and proprietary systems. In preparation for the launch of the flagship restaurant, Chipotle promoted the hiring of plaintiff as its new high-level chef. Plaintiff appeared in various widely-circulated and noted publications, spoke to journalists, and attended Chipotle-sponsored events to help market Chipotle restaurant brands.

         All seemed to be going well and, in accordance with the agreement, plaintiff received his annual salary, monthly allowances, a first year-end bonus, and first set of vested stock. It appeared that defendants were on schedule to launch the restaurant in New York City by the end of plaintiff's third year of employment. However, things took a very different turn.

         While plaintiff was working on staffing for the new restaurant, he learned from Chipotle's Chief Marketing Officer (CMO) that Ells had a non-disclosure agreement (NDA) with another well-known chef, who previously worked with defendants on a ramen restaurant concept, similar in both purpose and design to the one defendants contracted plaintiff to develop. The prior project fell apart when that chef and defendants failed to agree on financial terms. Defendants remained subject to the NDA with the other chef. Chipotle's CMO confided in plaintiff that the chef would sue under the NDA if Chipotle opened the ramen restaurant. Plaintiff further alleged that defendants converted, without authorization, the other chef's design for what became the Washington, D.C. flagship restaurant for one of Chipotle's other brands.

         When plaintiff confronted Ells about the NDA, Ells told him to continue with the work on the ramen restaurant, but plaintiff refused. Soon thereafter, Ells fired plaintiff.

         As relevant to this appeal, plaintiff sued defendants for fraudulent inducement [1]. Plaintiff claimed that by virtue of his reasonable reliance on Ells' omissions about the business arrangement with the other chef, defendants fraudulently induced him to work for Chipotle and to share his restaurant concept to his detriment. He alleged that he would not have entered into the agreement with defendants had he known about the prior business arrangement. He further asserted that the ideas the Chipotle staff contributed to plaintiff's design for the restaurant concept actually belonged to the other chef, and that using those ideas to launch plaintiff's project would subject plaintiff to legal action. Plaintiff claimed he was "damaged in an amount to be determined at trial, including, but not limited to, the value of his Chipotle equity and lost business opportunities in connection with his ramen concept." He further requested compensatory and punitive damages in amounts to be determined at trial, as well as attorneys fees and disbursements.

         Defendants moved to dismiss the complaint under CPLR 3211(a)(1) based on the documentary evidence that established plaintiff's at-will employment status, and under 3211(a)(7) for failure to state a cause of action. Defendants argued, in part, that a cause of action for fraudulent inducement may be maintained only where a party has suffered out-of-pocket pecuniary loss, not, as in plaintiff's case, where damages are speculative or consist of lost business opportunities.

         Supreme Court granted the motion and the Appellate Division affirmed with two justices dissenting (135 A.D.3d 535');">135 A.D.3d 535 [1st Dept 2016]). The majority held that plaintiff's damages were speculative and the facts alleged did not support an inference of calculable damages. The dissent concluded that because the pleading must be construed liberally and damages need not be proven during the pleading stage, the case should proceed to discovery to allow plaintiff to accumulate evidence of a pecuniary loss. ...

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