Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Gubricky v. Ells

United States District Court, D. Colorado

April 4, 2018

SEAN GUBRICKY, derivatively on behalf of nominal Defendant, Chipotle Mexican Grill, Inc., Plaintiff,
v.
STEVE ELLS, MONTGOMERY F. MONTY MORAN, MARK CRUMPACKER, JOHN S. CHARLESWORTH, KIMBAL MUSK, PATRICK J. FLYNN, STEPHEN GILLETT, ALBERT S. BALDOCCHI, DARLENE J. FRIEDMAN, and NEIL W. FLANZRAICH, Defendants, and CHIPOTLE MEXICAN GRILL, INC., Nominal Defendant. ROBBINS GELLER RUDMAN & DOWD LLP, and MOTLEY RICE LLC, Intervenors.

          ORDER APPROVING DERIVATIVE ACTION SETTLEMENT

          William J. Martinez United States District Judge.

         Before the Court is Plaintiff Sean Gubricky's Unopposed Motion for Final Approval of Derivative Action Settlement (ECF No. 115) and Gubricky's Unopposed Motion for Award of Attorneys' Fees and Reimbursement of Expenses (ECF No. 116). The Court held a settlement fairness hearing (“Settlement Hearing”) on March 15, 2018, and announced at the end of that hearing that it was taking these motions under advisement.

         The Court is now prepared to rule. For the reasons explained below, objections to the Proposed Settlement will be overruled and both motions will be granted.

         I. BACKGROUND

         A. Events Leading to the Proposed Settlement

         Gubricky filed this Rule 23.1 derivative action on August 8, 2016. (ECF No. 1 (redacted public complaint); see also ECF No. 20 (unredacted restricted complaint).) Gubricky alleged that a series of food borne illness outbreaks at Chipotle restaurants evidenced severe mismanagement in breach of Chipotle's directors' fiduciary duties owed to the corporation and its shareholders.

         On June 7, 2017, the Court granted Defendants' motion to dismiss, finding that Gubricky had “failed to plead demand futility under controlling Delaware standards.” Gubricky v. Ells, 255 F.Supp.3d 1119, 1122 (D. Colo. 2017) (ECF No. 90). The Court dismissed Gubricky's complaint without prejudice and gave him an opportunity to make a demand on Chipotle's board of directors. Id. at 1134.

         Rather than make a demand, Gubricky eventually filed his Unopposed Motion for Preliminary Approval of Settlement. (ECF No. 110.) There, Gubricky announced that he had been “engaged in active settlement negotiations for months prior to the Court's decision [on the motion to dismiss], ” and that those negotiations had now produced “an agreement in principle to settle the Pending Action (the ‘Proposed Settlement').” (Id. at 2.)

         B. The Proposed Settlement Itself

         The Proposed Settlement does not award any form of monetary compensation to Chipotle or its shareholders. Rather, it focuses on corporate governance reforms.

         The first major reform is a requirement that Chipotle establish-and maintain for at least two years after final approval of the Proposed Settlement-a Food Safety Advisory Council (“Council”), which must meet at least quarterly and must comprise a minimum of three independent consulting experts in food safety. The Council will investigate, evaluate, and make recommendations regarding food safety to Chipotle's Executive Director of Food Safety, who will participate in all Council meetings and serve as the liaison between Chipotle and the Council. The Council must continually review Chipotle's food safety procedures and strategies, validate existing initiatives, and advise on opportunities for improvement. The Council's recommendations must be reported to the company at least quarterly and more often as needed. Further, the Executive Director of Food Safety must report the Council's activities to the board of directors on a quarterly basis. (ECF No. 110-2 ¶ 2.)

         This Council was, in fact, already in place and operating as of November 2016. (Id.)

         The second major reform is a requirement that Chipotle amend its whistle blower program to ensure that: (a) Chipotle's general counsel must report to the Audit Committee details of any significant food borne illness complaints and must provide a detailed report concerning his or her investigation of such complaints no later than the next Audit Committee meeting; (b) a log of such significant food borne illness complaints, as well as the results of all investigations of such complaints, must be made in writing and maintained by the CFO and general counsel for a period approved by the Audit Committee; and (c) Chipotle will continue to allow its independent auditor access to the log and investigation results upon request. (Id. ¶ 9.)

         The third major reform is a “commit[ment]” that, by May 2018, at least three of Chipotle's current board members will no longer hold that office and at least three new board members will have been appointed. Similar to the first reform, however, this was already mostly accomplished: “For avoidance of doubt, Montgomery Moran's departure from the Board, Chipotle's four new Board appointees as of December 2016, and the four Board members who will not be running for reelection to the Board in 2017 shall be credited towards Chipotle's compliance with this provision.” (Id. ¶ 1.)

         The Proposed Settlement also included Defendants' stipulation not to oppose an award of attorneys' fees and expenses up to $375, 000. (ECF No. 110-1 § 10.1.) This amount would include, if approved by the Court, a $1, 000 service fee to each Named Plaintiff. (Id.)

         C. Preliminary Approval & Related Filings

         The Court granted preliminary approval to the Proposed Settlement. (ECF No. 111 ¶ 1.) The Court set an approval hearing for March 15, 2018, and required Chipotle to distribute notice (by U.S. mail to all shareholders of record, by posting on its website, and by press release) at least 45 business days before the settlement hearing. (Id. ¶¶ 2-6.)

         On February 23, 2018, Gubricky filed a motion for final approval of the Proposed Settlement (ECF No. 115), and a motion for attorneys' fees and expenses in the amount of $375, 000 (ECF No. 116).

         On March 1, 2018, Chipotle filed its “Proof of Mailing and Posting.” (ECF No. 127.) It contains a declaration from an in-house Chipotle lawyer who attests that notice of the settlement was placed on the company's website on December 22, 2017, and that the required press release went out the same day. (ECF No. 127-1 at 2.) The in-house lawyer also attaches to his declaration an affidavit of Alexander Villanova, a project manager at Epiq Class Action & Claim Solutions (“Epiq”), which Chipotle hired to act as “notice administrator.” Villanova says that Epiq received shareholder data from Chipotle and used it to print notices, which were mailed on January 8, 2018. (ECF No. 127-1 at 8.) Villanova does not say in his declaration how many notices went out (he does in a later declaration, see Part II, below), but he says that thirty-one notices came back as undeliverable and that Epiq re-mailed notices to updated addresses if the Postal Service provided an updated address. (Id.) Also, Epiq received three requests “for additional copies of the Notice to send to beneficial holder positions, ” and Epiq fulfilled those requests. (Id. at 9.)

         D. Objections

         The Court received four objections, or apparent objections, to the Proposed Settlement: (1) a 9-page objection from Mark D. Blau (“Blau Objection”) (ECF No. 123); (2) a 2-page objection from Kaleb E. Keller (“Keller Objection”) (ECF No. 129); (3) a 1-page letter from Olof Hellen which expresses skepticism regarding, but no clear objection to, the Proposed Settlement (“Hellen Letter”) (ECF No. 131); and (4) a 6-page objection from David Rubenstein (“Rubenstein Objection”) (ECF No. 138).

         Regarding the Blau Objection, the Court ordered the parties to file responses (ECF No. 128), which they did (ECF Nos. 133, 135)-the substance of the matters raised is addressed below.

         Regarding the Keller Objection, the Court stated that it needed no response to the substance of his objections, but the Court ordered Chipotle to respond to Keller's claim that he had not received notice of the Proposed Settlement until shortly before the objection deadline. (ECF No. 130.) Chipotle filed its response. (ECF No. 134.) Again, the substance of the matter is addressed below.

         Regarding the Hellen Letter, the Court declared it inexcusably untimely and, in any event, not sufficiently specific to qualify as a proper objection. (ECF No. 132.) The Court therefore struck it. (Id.)

         Regarding the Rubenstein Objection, it was received by the Clerk's office in the mail shortly before the Settlement Hearing, but the Clerk's office did not make the undersigned aware of the objection until a few hours after the Settlement Hearing. Nonetheless, assuming the Rubenstein Objection's untimeliness could be excused, Rubenstein essentially repeats arguments already asserted in by Blau and Keller. Thus, the Court ordered that it needed no responses to the Rubenstein Objection. (ECF No. 139.)

         II. TIMELINESS OF NOTICE

         As described below, whether to approve a derivative settlement turns on a number of substantive factors. Before the Court can reach those factors, however, it must resolve whether the parties complied with the required notice procedures. The Keller Objection states that Keller received notice for the first time by U.S. mail on February 26, 2018-just a few days shy of the March 1, 2018 deadline to file objections. (ECF No. 129 at 2.) “[P]resumably, ” Keller continues, “many other Current Chipotle Shareholders did also [i.e., receive notices very close to the objection deadline].” (Id.) Rubenstein goes further, claiming he did not receive notice until March 10, 2018. (ECF No. 138 at 2.)

         In response to the Keller Objection (Chipotle did not have a chance to respond to the Rubenstein Objection, due to its late filing), Chipotle submitted a supplemental declaration from Villanova. (ECF No. 134-1.) He there stated that the initial mailing- presumably referring to the January 8, 2018 mailing-went to ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.