Dive Brief:

•  A federal judge Friday granted a motion filed by Starbucks shareholders in an ongoing case to reconsider ex-CFO Rachel Ruggeri as a defendant regarding certain claims — a little less than a month after the judge in a Nov. 19 ruling dismissed all claims against the finance chief, according to court documents filed with the U.S. District Court Western District of Washington in Seattle.
• In a narrow decision, U.S. District Judge John Chun granted the motion to reconsider Ruggeri as a “controlling person” in the suit — and simultaneously, shot down a motion by Starbucks to deny the bid for reconsideration.  
• “Because the Court found that Plaintiffs did plead a § 10(b) claim, and Defendants never raised the issue of control in its prior briefings…it would be procedurally improper for the Court to now dismiss Plaintiffs’ § 20(a) claims against Defendant Ruggeri for failing to plead control,” Chun wrote.

Dive Insight:

First filed last August by Charles Garbaccio on behalf of himself and other shareholders, the suit alleges the Seattle-based coffee chain, Ruggeri and former CEO Laxman Narasimhan violated federal securities law by making materially false or misleading statements related to its “Triple Shot” reinvention strategy first debuted in late 2023, CFO Dive sister publication Restaurant Dive reported at the time.

A long-time employee of the coffee chain, Ruggeri — who first joined the chain in 2001 as its director of finance and took the CFO seat in 2021 —  left Starbucks under conditions that met the “without cause” provision of its severance and control plan this March, with Nordstrom alum Cathy Smith succeeding her in the top financial seat, CFO Dive previously reported.

Ruggeri and Narasimham — the CFO and CEO, respectively, during the period under scrutiny by the shareholder suit — made materially false statements about the company’s revenue outlook for full-year 2024 and its growth plan for China related to the “Triple Shot” plan, according to the original complaint.

On Nov. 19, Judge Chun partially dismissed the case, including all claims against Ruggeri. The partial ruling held that shareholders had demonstrated “some, but not all” of their securities fraud claims under section 10(b) of the Exchange Act. The court “thus declines Defendants’ request to dismiss any of Plaintiffs’ section 20(a) claims that hinge on Plaintiffs’ validly pleaded section 10(b) claims as discussed above,” the ruling said. “As for all other 20(a) claims, the Court dismisses them without prejudice for failure to state a claim.”

The Friday ruling narrowly walks back part of that dismissal relating to section 20(a) rules under the Securities Exchange Act, which establishes “control persons” for securities liabilities.

In a Dec. 3 motion to reconsider Ruggeri as a defendant related to those claims, shareholders argued Ruggeri’s dismissal “appears to stem from a misapprehension that she must be a primary violator of §10(b) for §20(a) liability to attach,” according to the motion. “This, however, constitutes manifest error because, under binding precedent, a control person remains secondarily liable under §20(a) even if she is not a primary §10(b) violator.”

As part of the Dec. 12 decision to grant the motion of reconsideration, the court “determined that the Complaint plausibly alleges that Defendant Ruggeri is a “controlling person” within the meaning of the statute,” according to the ruling. 

The ongoing suit comes as Starbucks continues to face challenges relating to falling sales, even as it looks to embark on a new turnaround plan. Smith referred to Starbucks’ fourth quarter as a “milestone” period, according to a statement included in its earnings results for its fourth quarter and full year ended Sept. 28.

“As we continue to grow, our goal is that every transaction is higher quality and more profitable,” Smith said during the company’s earnings call, according to a transcript. “We're on a multiyear turnaround, Q4 was a turning point, having delivered the first quarter of global comp growth in seven quarters, and we're encouraged by our trends to-date in Q1.”

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