A Washington federal judge dismissed challenges to Starbucks's Diversity, Equity, and Inclusion ("DEI") policies in a strongly worded opinion, making clear that politics don't belong in his courtroom.
On September 11, 2023, the U.S. District Court for the Eastern District of Washington dismissed plaintiff National Center for Public Policy Research's shareholder derivative suit. Plaintiff, an advocacy group engaged in what the court described as a "nationwide campaign" to litigate cases challenging "woke" corporate DEI initiatives, brought suit against directors and officers of Starbucks, challenging the company's DEI initiatives as (i) illegal; (ii) a breach of the directors' and officers' fiduciary duties; and (iii) ultra vires acts.
Plaintiff previously published an open demand letter in March 2022 on behalf of Starbucks shareholders, demanding that Starbucks retract certain of its DEI initiatives. The Starbucks board of directors considered the demand in consultation with outside counsel, management, and relevant subject-matter experts. Starbucks's board rejected the demand, finding that retraction of the initiatives would not be in the best interest of its shareholders. Plaintiff brought this derivative suit five months later in August 2022, seeking, among other remedies, declaratory judgments the policies were illegal.
In its written opinion dismissing the suit, the court made clear that a shareholder derivative suit was an improper means for plaintiff to pursue its political agenda, stating, "[t]his Court is not an investment counselor. Nor is it a political attaché. Courts of law have no business involving themselves with reasonable and legal decisions made by the board of directors of public corporations." The court determined that plaintiff filed the lawsuit to pursue its own personal interests, rather than the interests of Starbucks Corporation. The court noted that plaintiff showed "obvious vindictiveness" toward Starbucks and that plaintiff's objective "lack[ed] the support of other shareholders."
Further underscoring why plaintiff did not adequately represent the interests of Starbucks's shareholders, the court noted that plaintiff owned only 56 shares out of approximately 1.15 billion outstanding shares of Starbucks stock. The court admonished plaintiff that a more appropriate recourse for plaintiff's concern over Starbucks's DEI initiatives would be to "reallocate their capital elsewhere."
This case is the first written decision in a shareholder derivative action challenging DEI initiatives. While we expect that the strongly worded, categorical rejection of plaintiff's derivative claims may dissuade the filing of similar actions, it is worth noting that the language and rationale of the court's dismissal may apply more broadly in other contexts where courts perceive shareholder derivative suits are pursued to advance personal or political objectives.
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