A Cup of Coffee - and a Dismissal - To Go

Last month, Federal District Court Judge Stanley A. Bastian dismissed at oral argument a shareholder suit challenging the Starbucks DEI initiatives. The Court has now issued a brief, yet informative written decision that in no uncertain terms rejected the plaintiff's attempt to import its political agenda into the Starbucks boardroom through the legal process. 

The plaintiff (National Center for Public Policy Research), owner of a small number of Starbucks shares, sued Starbucks to force it to reverse course on its DEI initiatives, which the plaintiff characterized as woke ESG-driven initiatives.   

In dismissing the action, the Court observed that it did not function as "an investment counselor" or "political attaché" and it rebuffed the notion of court involvement with reasonable and legal decisions made by public company boards. The Court rejected the legal basis for the action given the small number of shares the plaintiff owned as well as plaintiff's failure to satisfy derivative action rules. The Court further premised its dismissal on the business judgment of the Starbucks board, which developed its DEI initiatives in consultation with outside counsel and other experts. Given plaintiff's failure to rebut the business judgment presumption in favor of the Starbucks board, plaintiff was unable to overcome the business judgment rule that assumes corporate boards will make decisions in the best interests of the company the board represents. 

The court's decision is yet another milestone in the developing precedent addressing legal attacks on ESG and DEI in corporate America. Given the recent Supreme Court affirmative action decisions and the growing political divide, we expect such attacks will continue. The takeaway here: to withstand legal scrutiny, board-directed DEI initiatives should be premised on data, grounded in sound expert and professional advice, and initiated pursuant to the normal governance process. That advice -- and the cost of avoiding an expensive journey through the courts -- should be more than enough to pay for a cup of coffee.