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Washington District Court Declines To Dismiss Putative Class Action Against Coffee Retailer
11/25/2025On 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.
