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Mohammed v. Ells

United States District Court, D. Colorado

August 26, 2014

SALEEM MOHAMMED, derivatively on behalf of Chipotle Mexican Grill, Inc., Plaintiff,
M. STEVEN ELLS, et al., Defendants, CHIPOTLE MEXICAN GRILL, INC., Nominal Defendant.


WILLIAM J. MART├ŹNEZ, District Judge.

On April 18, 2014, the Court entered an Order preliminarily approving the proposed Settlement of this action, approving and directing notice to the shareholders, and setting a final fairness hearing on the settlement. (ECF No. 83.) The Court held a fairness hearing on August 20, 2014. (ECF No. 95.) Having considered the arguments raised in the briefs and at the hearing, and for the reasons set forth below, the Court grants Plaintiff's Unopposed Motion for Final Approval of Derivative Action (ECF No. 89) and Plaintiff's Unopposed Motion for Attorneys' Fees (ECF No. 90).


This case arises out of a 2010 investigation conducted by the United States Immigration and Customs Enforcement ("ICE") into work authorization for Chipotle's employees. ICE's investigation, and Chipotle's response to that investigation, led to approximately 450 employees being terminated in Minnesota due to lack of valid work authorization. Similar audits conducted in Virginia and the District of Columbia led to the termination of at least 50 more employees. In the wake of these investigations, Chipotle also received a subpoena from the Securities and Exchange Commission, and an investigation by the U.S. Attorney for the District of Columbia.

Per the allegations in the Complaint, at the time this action commenced, Chipotle had spent over $1, 000, 000 on legal fees. Chipotle also suffered the costs incurred in training new employees to replace those without valid work authorization, disruptions to operations due to the new employees, and negative publicity. Moreover, on the day the U.S. attorney announced his investigation, Chipotle's share price dropped two percent.

On July 12, 2012, Plaintiff Ralph B. Richey filed an action on behalf of Chipotle Mexican Grill, Inc. against Chipotle's Board of Directors ("Board") for breach of fiduciary duty related to the Company's failure to comply with employee work authorization requirements. (ECF No. 1.) Richey sought a declaration that the Board had breached its fiduciary duties, monetary damages in an amount necessary to compensate Chipotle for the harm caused by the breach, and attorneys' fees and costs for this litigation. ( Id. ) Richey was represented by attorneys from Charles Lilley & Associates, PC, Rigrodsky & Long, P.A., and Levi Korsinsky. ( Id. )

On September 21, 2012, Joanne Nelson filed a similar suit on behalf of Chipotle and its shareholders against Chipotle's Board of Directors. (Case No. 12-cv-2527, ECF No. 1.) Nelson was represented by attorneys from Robbins Umeda LLP, the Briscoe Law Firm, and Powers Taylor LLP. ( Id. )

On October 4, 2012, a third shareholder derivative lawsuit was filed by Francis Schmitz. (Case No. 12-cv-2635, ECF No. 1.) Schmitz was represented by attorneys from Faruqi & Faruqi, and Jeffery M. Villanueva, P.C. ( Id. )

On November 15, 2012, Plaintiffs Nelson and Schmitz filed a joint Motion asking the Court to consolidate the three shareholder derivative actions, and to appoint as co-lead counsel Robbins Umeda and Faruqi & Faruqi. (ECF No. 16.) Defendants agreed that consolidation was appropriate and took no position as to the Plaintiff's attorney leadership structure. Plaintiff Richey did not oppose consolidation, but asked that his counsel be appointed as lead counsel. (ECF No. 18.) On January 17, 2013, the Court consolidated the three cases with Plaintiff Richey's case being the lead case, and appointed the law firms of Rodrodsky & Long, P.A. and Levi & Korsinsky LLP as lead counsel, with Charles Lilley & Associates, P.C. as local counsel. (ECF No. 29.)

On March 20, 2013, Plaintiff Richey filed an amended complaint in the consolidated action, which is the operative pleading in this case. (ECF No. 38.) Shortly thereafter, Saleem Mohammed was substituted for Ralph Richey as the named Plaintiff in the consolidated action. (ECF No. 43.)

In April 2013, Defendants sought a stay of this litigation pending the outcome of the ongoing investigations into Chipotle's employment verification practices. (ECF No. 52.) The Magistrate Judge granted the stay in part, and directed the parties to file a motion to dismiss that addressed only justicability, given the pending investigations and related securities class action litigation. (ECF No. 58.) Defendants filed their motion to dismiss in May 2013. (ECF No. 61.)

In July 2013, Defendants filed a status report stating that United States District Judge Phillip A. Brimmer had dismissed the related securities class action litigation. (ECF No. 67.) As the briefing on Defendants' motion to dismiss relied heavily on the pending class action litigation, the Court ordered the parties to file supplemental briefs addressing the current posture of the case. (ECF No. 68.) The supplemental briefing was filed in September 2013. (ECF Nos. 77-78.)

In March 2014, the parties filed a Motion for Preliminary Approval of Derivative Action Settlement and Notice to Shareholders. (ECF No. 80.) The proposed settlement calls for Chipotle to enact corporate governance reforms aimed at improving the Board's oversight of hiring processes and procedures, particularly related to work authorization status. (ECF No. 81-1.) With the new reforms in place, the audit committee of the Board will receive at least biannual reports from Chipotle's Director of Compliance regarding employment compliance practices and procedures, and adherence thereto. ( Id. at 27.) The settlement outlines many of the items that must appear in those reports, and directs that these reforms must remain in place for at least three years. ( Id. at 27-29.)

Given the parties' settlement, the Court denied Defendants' Motion to Dismiss without prejudice to refiling if the settlement is not fully and finally approved. (ECF No. 82.) On April 18, 2014, the Court preliminarily approved the parties' settlement, directed that notice be provided to all shareholders, set a deadline for shareholders to object to the settlement, and set a final fairness hearing. (ECF No. 83.) On May 19, 2014, Chipotle posted a Notice of Settlement of Derivative Action to the front page of its corporate website, which remained active until August 6, 2014. (ECF No. 92-2.) Also in May 2013, ...

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