18 Oct 2023 Stefan Padfield: How Starbucks Avoided Accountability for Racial Discrimination

For those of you wondering whatever became of our lawsuit against Starbucks, Free Enterprise Project Associate Stefan Padfield provides an update in a commentary published by The Washington Times.

The bottom line: Instead of a judge in Washington State doing his job to consider whether Starbucks’ policies add up to illegal racial discrimination, he advised us to simply sell our shares and stop complaining. He then dismissed our case for ridiculous reasons.

Your legal system at work, ladies and gentlemen. Stefan’s Times commentary is published in full below.

Ask yourself if the following three rules constitute good corporate governance.

Stefan Padfield

First, shareholders who believe that corporate racial discrimination is a problem that threatens the company’s well-being — because, among other things, it’s illegal — are not proper representatives of a corporation’s best interests.

Second, selling their shares is the only recourse for shareholders who disapprove of illegal racial discrimination by the corporations whose shares they own.

Third, court doors are locked to those shareholders, preventing them from seeking justice.

Many readers will likely conclude that these rules are at odds with good corporate governance. Yet a judge in the state of Washington, the corporate home of Starbucks, not only recently essentially applied those rules to dismiss a suit against the company’s officers and directors but took the added step of suggesting the defendants seek sanctions to discourage a reversal of the ruling on appeal. Assuming I’ve piqued your interest, let’s unpack that decision.

On Aug. 30, 2022, the National Center for Public Policy Research, in the case of NCPPR v. Schultz et al., filed a complaint against Starbucks officers and directors alleging that defendants adopted for Starbucks a collection of seven policies, which, between them, (a) require Starbucks to discriminate based on race and facilitate Starbucks’ active discrimination based on race in its employment decisions (including hiring, firing and promotions); (b) require Starbucks to discriminate in its compensation of its officers based on the race of their workforce; and (c) discriminate in its contracting with suppliers and media companies, based on the race of potential vendors’ ownership.

NCPPR, where I work, was represented in this case by the American Civil Rights Project and the Ard Law Group.

This past Sept. 11, Obama appointee Stanley A. Bastian, chief U.S. district judge for the Eastern District of Washington, published his opinion dismissing the case.

On the issue of whether NCPPR could “fairly and adequately represent the interests of shareholders,” Judge Bastian concluded that because NCPPR “has a clear goal of dismantling what it sees as destructive DEI [diversity, equity and inclusion] … initiatives in corporate America,” it therefore “did not file this action to enforce the interests of Starbucks, but to advance its own political and public policy agendas.”

There is a critical element missing in this analysis, however. For NCPPR’s concerns about DEI to conflict with the interests of Starbucks and its shareholders, the court would have to conclude that illegal discrimination under the guise of DEI poses no risk to Starbucks’ bottom line. Otherwise, our concerns about DEI in corporate boardrooms align perfectly with the interests of Starbucks and its shareholders. Given that Starbucks recently lost a roughly $28 million reverse-discrimination lawsuit, NCPPR’s concerns about illegal discrimination should make it an excellent representative of the shareholders’ interests.

Judge Bastian went on to argue: “This Complaint has no business being before this Court. … Whether DEI … initiatives are good for addressing long-simmering inequalities in American society is up for the political branches to decide.”

But what this ignores is that the legislatures of this country have already spoken clearly and loudly on the issue before the court and made it clear that discriminating on the basis of race is illegal. Thus, the judge’s ruling on this point boils down to the unacceptable conclusion that allegations of illegal discrimination have “no business being before this Court.”

Rather than doing what courts are supposed to do — provide venues for claims of illegal discrimination — Judge Bastian told shareholders to sell their shares if they don’t like their corporations illegally discriminating on the basis of race: “If Plaintiff remains so concerned with Starbucks’ DEI … programs, the American version of capitalism allows them to freely reallocate their capital elsewhere.”

It is worth noting as well that the judge concluded that NCPPR failed to rebut the business judgment rule, which creates a presumption in favor of management to the effect that its business decisions are made in good faith, on a fully informed basis, and in the best interests of the corporation. What is missing from the judge’s analysis is an acknowledgment of the fact that knowingly engaging in illegal conduct is generally not protected by the business judgment rule.

NCPPR’s complaint makes clear that this is precisely what it is alleging Starbucks was doing when it purposely discriminated on the basis of race. Specifically, the complaint notes: “Defendants took these actions despite knowing … the policies … flagrantly violate a wide array of state and federal civil rights laws.”

The reader might be tempted at this point to agree that the judge was wrong to dismiss NCPPR’s claim and hope that this error can be corrected on appeal. However, at oral argument, Judge Bastian expressly invited Starbucks to seek Rule 11 sanctions in the case (despite binding authority that granting any such motion filed after a merits ruling would be a reversible error).

Effectively, that put a price tag on NCPPR’s right to petition higher courts to redress its grievances by making it pay the fees of both sides until and unless it obtained a reversal in the 9th U.S. Circuit Court of Appeals, well known for its inconsistency. That threat forced NCPPR to drop the case.

All is not lost, however. Some corporate executives and directors across the U.S. may be as committed to discriminating on the basis of race as their ideological compatriots in college admissions were until the Supreme Court put a stop to this illegal and immoral practice in Students for Fair Admissions v. Harvard.

Those who believe in equality under the law can rest assured that we will continue to challenge the illegal discrimination of these corporations until it reaches a similarly final, ignoble end.

Stefan Padfield is an associate at the National Center’s Free Enterprise Project, which is the original and premier opponent of the “woke” takeover of American corporate life. This was originally published by The Washington Times.