- within Insurance, Real Estate and Construction and Environment topic(s)
On November 19, 2025, Judge John H. Chun of the United States
District Court for the Western District of Washington pared the
allegations in a putative class action asserting claims under the
Securities Exchange Act of 1934 against a global coffee retailer
and certain of its current and former executives. Garbaccio v.
Starbucks Corp., ––F. Supp. 3d––, 2025
WL 3228275 (W.D. Wash. 2025). Plaintiffs alleged that defendants
made misrepresentations in an attempt to conceal that customer
traffic was declining in the company's stores. The Court held
that plaintiffs adequately alleged falsity as to certain statements
and that scienter was adequately alleged with respect to the
company's former CEO.
Plaintiffs' allegations concerned "store traffic," a
company financial metric that reports the number of sales at
company-operated retail locations. Id. at *2. Because many
of plaintiffs' allegations relied on confidential witness
statements and information contained in a particular news article,
the Court first addressed whether to credit those allegations.
Id. at *11. The Court held that certain information in the
article—for example, concerning "understaffing,
difficulty fulfilling drink orders, and longer customer wait
times"—had sufficient indicia of reliability to be
considered at this stage because such information was purportedly
based on interviews with employees having first-hand knowledge and
whose roles and responsibilities were sufficiently described, and
was further corroborated by other sources, including a statistic
from a consulting firm and "statements by [company] executives
about the need to increase [employee] hours and decrease wait times
at stores." Id. at *13 & n.20. However, the Court
declined to consider the article's contention that the
company's "new staffing algorithm" was partially to
blame for these issues, as the Court noted that the article did not
contain sufficient information to show the purported basis of
interviewees' knowledge regarding the algorithm, and no
corroborating sources were provided. Id. at *13.
With respect to plaintiffs' alleged misrepresentations, the
Court held that certain were plausibly alleged to be false and
certain were not. Id. at *14–21. The Court rejected
allegations based on what the Court found to be uncredited and
speculative conclusions and which were otherwise consistent with
company statements. Id. at *14. The Court also determined
that the company's reporting of historical data in optimistic
terms was non-actionable, and that the company's acknowledgment
of the impact of competition in China was not rendered materially
misleading by the company's "simultaneous reassurances of
the business's strength." Id. at *16–17. The Court
further rejected challenges to certain statements that were merely
"general expressions of optimism," as "unspecific
and not capable of objective verification." Id. at *17.
However, the Court held that certain statements—relating to
purported improvements to the in-store experience for customers and
employees, and certain statements regarding data from the
company's customer loyalty program—were adequately
alleged to be false because they were contradicted by the portions
of the news article that the Court credited or subsequent company
statements, and did not otherwise fall within the statutory
protection for forward-looking statements accompanied by meaningful
cautionary language. Id. at *18–21. Because the Court found
those allegations sufficient at this stage, the Court also held
that plaintiffs had plausibly alleged that a statement indicating
"no material changes to the risk factors" previously
disclosed
was adequately alleged to be false because plaintiffs had
adequately alleged that those risks had already materialized at the
time the statement was made. Id. at *21.
With respect to scienter, the Court held that plaintiffs adequately
alleged scienter with respect to statements by the company's
former CEO because the statements related to the core of the
company's business, the CEO was allegedly involved in the
company's day-to-day operations and possessed information about
store staffing and sales, had repeatedly touted his knowledge of
the company's business plans and how those plans were impacting
customer and staff experiences, and was terminated
"abruptly." Id. at *22. But the Court held that
plaintiffs' allegations were insufficient to plausibly allege
scienter as to the company's CFO, given that the CFO was not
alleged to have unique knowledge of the company's sales plans,
to have made statements suggesting such knowledge, or to have a
sufficient motive for making the alleged misstatements.
Id. at *23.
In addition, the Court held that plaintiffs adequately alleged loss
causation based on the alleged corrective disclosures that the
company failed to meet earnings estimates and revised its business
guidance. Id. at *24. The Court concluded that, because
plaintiffs alleged the company's stock price fell after these
announcements, they had pleaded a sufficient causal connection
between the actionable statements and the events that caused their
alleged losses. Id.
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