Chipotle 2012 Annual Report Download - page 58

In the purported class action cases, on August 28, 2012, the district court denied the plaintiffs’ motion for
class certification. As a result, each plaintiff may only pursue claims against the Company in those cases on an
individual basis. The plaintiff filed a motion for reconsideration of the decision on class certification, which was
denied by the court on January 14, 2013.
The Company lowered the height of its serving line walls throughout California some time ago, which
makes injunctive relief in these cases moot, and has the lower serving line walls in a significant majority of the
Company’s restaurants outside of California as well. The Company will continue to vigorously defend the
ongoing class action cases. Due to the possibility of further appeals and the uncertainties of litigation, it is not
possible at this time to reasonably estimate any additional potential liability from those cases.
Notices of Inspection of Work Authorization Documents and Related Civil and Criminal Investigations
Following an inspection during 2010 by the U.S. Department of Homeland Security, or DHS, of the work
authorization documents of the Company’s restaurant employees in Minnesota, the Immigration and Customs
Enforcement arm of DHS, or ICE, issued to the Company a Notice of Suspect Documents identifying a large
number of employees who, according to ICE and notwithstanding the Company’s review of work authorization
documents for each employee at the time they were hired, appeared not to be authorized to work in the U.S. The
Company approached each of the named employees to explain ICE’s determination and afforded each employee
an opportunity to confirm the validity of their original work eligibility documents, or provide valid work
eligibility documents. Employees who were unable to provide valid work eligibility documents were terminated
in accordance with the law. In December 2010, the Company was also requested by DHS to provide the work
authorization documents of restaurant employees in the District of Columbia and Virginia, and the Company
provided the requested documents in January 2011. The Company has received additional requests for work
authorization documents covering a small number of individual restaurants as well, and ICE’s investigation
remains ongoing. In April 2011, the Company also received notice from the office of the U.S. Attorney for the
District of Columbia that it is conducting an investigation into these matters through its criminal division. The
operating hours of the Company’s Minnesota, D.C. and Virginia restaurants have been uninterrupted by these
developments, and the Company believes its practices with regard to the work authorization of its employees,
including the review and retention of work authorization documents, are in compliance with applicable law.
However, the termination of large numbers of employees in a short period of time does disrupt restaurant
operations and results in a temporary increase in labor costs as new employees are trained.
In May 2012, the U.S. Securities and Exchange Commission notified the Company that it is conducting a
civil investigation of the Company’s compliance with employee work authorization verification requirements and
its related disclosures and statements, and the office of the U.S. Attorney for the District of Columbia advised the
Company that its investigation has broadened to include a parallel criminal and civil investigation of the
Company’s compliance with federal securities laws.
The Company intends to continue to fully cooperate in the government’s investigations. It is not possible at
this time to determine whether the Company will incur any fines, penalties or further liabilities in connection
with these matters.
Shareholder Derivative Actions
On July 12, 2012, Ralph B. Richey filed a shareholder derivative action in the U.S. District Court for the
District of Colorado alleging that the members of the Company’s Board of Directors breached their fiduciary
duties in connection with employee work authorization compliance matters. On September 21, 2012, Joanne
Nelson filed a shareholder derivative action in the same court alleging that the members of the Company’s Board
of Directors and the Company’s Chief Financial Officer breached their fiduciary duties, caused waste of
corporate assets, and were unjustly enriched in connection with employee work authorization compliance
matters, as well as in connection with the Company’s alleged failure to disclose material information about the
Company’s business results and prospects, and in connection with compensation paid to some of the Company’s
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Annual Report