WASHINGTON, D.C. – Today, the U.S. District Court for the Middle District of Florida denied Target Corporation’s motion to dismiss the shareholder derivative lawsuit titled Craig v. Target Corporation filed by America First Legal (AFL), with co-counsel Boyden Gray PLLC and Lawson Huck Gonzalez PLLC. The Court ruled the allegations in the lawsuit — that Target failed to adequately disclose the risk of consumer backlash to the corporation’s LGBT “Pride Month” marketing and sales campaign — legitimately state a claim for a violation of federal securities laws.
On August 8, 2023, AFL filed a lawsuit against Target and its Board of Directors for misleading investors about the market risks of a key corporate initiative: its Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) mandates. The lawsuit alleged that Target embraced a radical transgender agenda targeting children and families through the corporation’s infamous 2023 “Pride” campaign. AFL’s lawsuit further alleged that the backlash to Target’s 2023 Pride Campaign led to billions in losses.
Target moved to dismiss the lawsuit and change the case venue from Florida, where AFL’s clients reside and filed the case, to Minnesota, where Target is headquartered.
In a ground-breaking decision, the Court denied both motions, holding:
- Target’s 2021 risk disclosure could be materially misleading because it was not specifically tailored to the risks related to its “plan for a new and aggressive 2023 Pride Month Campaign.” Target “failed to account for the specific risk that Target’s upcoming 2023 Pride Month Campaign (or previous campaigns championed by Target) could cause customer boycotts and a loss of sales.” The amended complaint alleges that Target knew the risks of the 2023 Pride Month Campaign and failed to publicly disclose such risks. Generic risk disclosures are inadequate to shield defendants from liability for failing to disclose known risks.
- Target’s 2022 risk disclosure could be misleading because it failed to disclose that Target’s ESG and DEI goals could lead to investor backlash and a loss of sales. According to the Court:
- [W]hile a generic disclosure ordinarily may be sufficient to warn investors of the failure to implement ESG and DEI programs, the Defendants fail to mention the specific risk of its upcoming 2023 Pride Month Campaign. Plaintiffs have pleaded that Target failed to mention the “known risk of adverse customer reactions to its DEI/ESG mandates.” Further, Plaintiffs state that “[s]hareholders, consumer groups, and conservative commentators repeatedly warned Target that its ESG/DEI initiatives and LGBT activism would cause it to lose customers.” While Target’s disclosure warned that its failure to meet ESG and DEI objectives may impact its financial condition, Target fails to mention that implementing such objectives may lead to adverse financial conditions. As stated above, generic disclosures are inadequate to protect the Defendants if there is a known risk.
- Plaintiffs sufficiently pled facts showing that Defendants’ forward-looking statements about its ESG and DEI risks were made with “actual knowledge that they were false and misleading.” Specifically, the Court cited allegations by a confidential witness who held a senior marketing position at Target who said “senior executives’ decisions to undertake the 2023 LGBT-Pride Campaign and make it more prominent were deliberate” and that Target’s corporate “mantra now” was to “stick [its] nose so far out. . . even at the risk of alienating certain customers” and “without thinking [if the campaign went] too far.” Accordingly, the Court found that based upon the facts presented, “it is plausible that the risk disclosures [by Target related to the Campaign] were knowingly false.”
- Due to boycotts against Target, the company lost “$10 billion in market valuation between May 18 and May 23, 2023,” with an overall loss between May 17 and October 6 of that same year of “more than $25 billion in market capitalization.”
- In denying Target’s motion to transfer, the Court noted that many of Target’s directors live outside of Minnesota and most of its corporate employees are required to come into the office once per quarter, implying that many of them work remotely. Furthermore, Target’s 2020, 2021, 2022, and 2023 shareholder meetings did not occur in Minnesota. For these and other reasons, Target “failed to carry its burden in demonstrating that this Court should transfer this securities litigation case to the District of Minnesota.”
Statement from Reed D. Rubinstein, America First Legal Senior Vice President:
“Today’s decision is a warning to publicly traded corporations’ boards and management: Our federal securities laws mandate fair and honest disclosure of the market risk created by management when it uses shareholder resources, including consumer goodwill, to advance idiosyncratic and extreme social or political preferences. The risk of ESG mandates and DEI initiatives, such as Target’s “Pride Month” that targeted young children, cannot be whitewashed with boilerplate language or ignored,” said Reed Rubinstein.
Statement from Jonathan Berry, Managing Partner of Boyden Gray PLLC:
“Today’s ruling is an important win for our clients; we look forward to continuing to litigate this case to obtain relief for our clients and hold Target accountable for their actions,” said Jonathan Berry.
Read the Court’s decision on the motion to dismiss here.
Read the motion to transfer here.
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