According to a press release dated May 24, 2007, after mediation, the parties to the purported class actions, Andropolis v. Red Robin Gourmet Burgers, et al (consolidated with Baird v. Red Robin Gourmet Burgers, et al), and Wilster v. Snyder et al, have signed memoranda of understanding providing for settlements to resolve the litigations, each settlement subject to approval by the court. While the Company and the individual defendants continue to believe that the actions were properly dismissed by the district court, a decision was made to enter into these memoranda of understanding to avoid the burden, risk and expense that would result from the continued pursuit by plaintiffs of the appeals and underlying claims in these lawsuits. The proposed Andropolis settlement involves a $1.5 million payment, covered by insurance, to the putative class and its counsel. The proposed Wilster settlement involves the payment of $250,000 to plaintiff's counsel, also covered by insurance, and an agreement to adopt certain corporate governance measures. The Company expects that the proposed Andropolis settlement will be filed with the court prior to the end of May, and that the proposed Wilster settlement will be filed in late May or early June.
On January 17, 2007, the Court entered the Final Judgment in favor of Defendants, and against Plaintiff, dismissing Plaintiff's claims with prejudice. Soon after, the plaintiffs filed a Notice of Appeal as to the January 2007 Judgment and Memorandum & Opinion dismissing the Plaintiff’s claims with prejudice. On May 14, 2007, the Court entered the Order of the U.S. Court of Appeals for the Tenth Circuit. According to the Order, upon consideration of joint motion of parties to voluntarily dismiss this appeal, the appeal is dismissed, each party to bear its own costs. If District Court does not approve settlement reached, counsel will reinstate appeal upon motion made by appellant within 30 days of the order denying approval of settlement. On May 24, 2007, a Stipulation of Settlement was filed.
According to an article dated January 8, 2007, Red Robin Gourmet Burgers Inc. and several of its former officials Jan. 2 won dismissal of a class securities fraud suit in the U.S. District Court for the District Court of Colorado charging the restaurant concern with deficient internal controls and accounting misconduct (Andropolis v. Red Robin Gourmet Burgers Inc., D. Colo., No.05-cv-01563-EWN-BNB, 1/2/07).
Judge Edward Nottingham said that as a whole, the plaintiff's allegations "strongly suggest that Red Robin fell victim to corporate mismanagement that, when discovered, led to an instantaneous and publicly announced change of the guard. With that change came a significant miscalculation of future profits, which Red Robin also publicly announced immediately upon discovery." According to the court, the complaint "fails to successfully allege with particularity a single false and misleading material statement or omission; thus, Plaintiff fails to state a claim for securities fraud under Section 10(b)" of the 1934 Securities Exchange Act.
As reported by the Company’s FORM 10-Q for the quarterly period ended October 1, 2006, the class has not been certified and no discovery has occurred. Lead plaintiff, City of Philadelphia Board of Pensions and Retirement (the Lead Plaintiff) and Lead Counsel have been appointed for both of these class actions. On February 28, 2006, the Lead Plaintiff filed a consolidated complaint. In addition to the allegations in the initial Andropolis Complaint against the Company and the Company’s former chief executive officer and former chief financial officer, the consolidated complaint alleges that the Company and the Company’s current chief executive officer and current chief financial officer violated Sections 10(b) and 20(a) of the Exchange Act in connection with the Company’s announcement on January 10, 2006 that it was lowering its guidance for the quarter ended December 25, 2005, alleges claims against the Company’s former controller and alleges violations of Section 14(a) of the Exchange Act. The consolidated complaint seeks damages on behalf of a putative class of purchasers of the Company’s common stock during the putative class period of August 13, 2004 to January 9, 2006 (inclusive). All defendants have filed motions to dismiss the consolidated complaint that are currently pending before the court.
Several purported shareholder class action lawsuits have been filed against Red Robin Gourmet Burgers, Inc. and certain of its present and former executive officers alleging defendants violated federal securities laws. Specifically, the Complaint alleges that, during the Class Period, Red Robin issued a series of materially false and misleading statements regarding Red Robin's business and prospects and concealed improper self-dealing by its CEO. On August 11, 2005, Red Robin reported that its second quarter results would be lower than expectations due to charges and adjustments to various accounts and that its Chairman, President and CEO had resigned in light of an investigation into his personal use of Red Robin's assets. On this news, Red Robin stock fell from a close of $59.79 per share on August 11, 2005, to close at $45.55 per share on August 12, 2005.