Quick Overview

  • On Friday, December 12, U.S. District Judge John Chun in Seattle's Western District approved a motion by Starbucks shareholders to reconsider naming former Chief Financial Officer Rachel Ruggeri as a defendant on specific claims—after previously dismissing all claims against the finance executive in a November 19 ruling, according to court documents.
  • In a limited ruling, Judge Chun granted the motion to reinstate Ruggeri as a "control person" in the lawsuit, while denying Starbucks' request to reject the reconsideration motion.
  • Chun wrote in the ruling: "Because the Court finds that plaintiffs have indeed stated a Section 10(b) claim, and defendants never raised the control person issue in prior briefing... it would be procedurally improper for the Court to now dismiss plaintiffs' Section 20(a) claim against Ruggeri for failure to allege control person liability."

Deep Insight

The lawsuit was originally filed by Charles Garbaccio in August of last year on behalf of himself and other shareholders, alleging that the Seattle-based coffee chain, Ruggeri, and former CEO Laxman Narasimhan violated federal securities laws by making materially false or misleading statements regarding the "Triple Shot" transformation strategy first introduced in late 2023, as reported by Restaurant Dive, a sister publication of CFO Dive.

Ruggeri, a longtime Starbucks employee, joined the company in 2001 as a finance director and became CFO in 2021. In March of this year, she left Starbucks under the "without cause" provision of the company's severance and control plan, with former Nordstrom executive Cathy Smith succeeding her in the top finance role, as previously reported by CFO Dive.

According to the original complaint, Ruggeri and Narasimhan (who served as CFO and CEO, respectively, during the period covered by the shareholder lawsuit) made materially false statements regarding the company's fiscal 2024 full-year revenue outlook and China growth plans related to the "Triple Shot" program.

On November 19, Judge Chun partially dismissed the case, including all claims against Ruggeri. That partial ruling found that shareholders had established "some but not all" securities fraud claims under Section 10(b) of the Exchange Act. The ruling stated that the Court "therefore denies defendants' request to dismiss plaintiffs' Section 20(a) claims based on all validly pleaded Section 10(b) claims," and noted that "for all other Section 20(a) claims, the Court dismisses them without prejudice for failure to state a claim."

Friday's ruling narrowly walked back that dismissal with respect to Section 20(a) of the Securities Exchange Act, which establishes "control person" liability for securities violations.

In a motion filed December 3, shareholders requested reconsideration of naming Ruggeri as a defendant on the relevant claims, arguing that the dismissal of Ruggeri "appears to stem from a misunderstanding that she must be a primary violator under Section 10(b) for Section 20(a) liability to attach," the motion stated. "However, this constitutes clear error because under binding precedent, a control person is secondarily liable under Section 20(a) even if they are not a primary violator of Section 10(b)."

As part of the December 12 decision granting the reconsideration motion, the Court "finds that the complaint plausibly alleges that defendant Ruggeri is a 'control person' within the meaning of the statute," the ruling stated.

The ongoing litigation comes as Starbucks continues to face sales declines, even as the company seeks to launch new transformation initiatives. Smith called the fourth quarter a "milestone" period during the company's earnings report for the quarter and full year ended September 28, according to statements in the company's earnings release.

"As we continue to grow, our goal is for every transaction to be higher quality and more profitable," Smith said during the company's earnings call, according to the transcript. "We are in a multi-year transformation, and Q4 was a turning point, delivering our first global comparable sales growth in seven quarters, and we are encouraged by trends in the first quarter to date."

Attorneys for Starbucks and the plaintiffs did not immediately respond to requests for comment.