Target Case Charts Path for ‘Go Woke, Go Broke’ Securities Suits

A conservative group’s lawsuit accusing Target Corp. of misleading investors about financial risks from LGBTQ Pride marketing underscores a new line of attack against companies over their diversity and inclusion initiatives.

Target was sued this month by America First Legal Foundation, a nonprofit led by former Trump adviser Stephen Miller. The long shot complaint alleges Target, which faced conservative backlash over LGBTQ Pride marketing, deceived investors about its oversight of risks related to its diversity, equity, and inclusion policies.

Conservative legal groups have launched a wave of challenges to corporate DEI initiatives, going after McDonald’s Corp., Kellogg Co., and Progressive Corp., among many others. The legal arguments in those instances have often focused on discrimination laws.

AFL charted a different course by accusing Target of securities fraud. The case has serious problems, securities scholars and lawyers say. But it highlights the growing risk of similar suits against companies amid heightened scrutiny of such diversity initiatives.

“Even if it doesn’t prove to be viable, I don’t think it will deter would-be litigants from filing cases alleging this type of theory and other creative theories,” said Danette Edwards, co-chair of Katten Muchin Rosenman LLP’s securities enforcement defense group and a former Securities and Exchange Commission attorney.

‘Manufactured Claim’

Legal challenges to corporate DEI initiatives gained momentum after the Supreme Court in June rejected race-conscious college admissions policies.

AFL alone has accused more than a dozen companies—including McDonald’s, Kellogg, and Ben & Jerry’s parent Unilever Plc—of violating workplace discrimination laws. It has asked the Equal Employment Opportunity Commission to investigate.

Last week, the group brought a proposed class action against Progressive, alleging a program by the insurer awarding grants to Black-owned small businesses violates federal civil rights laws. Amazon.com Inc. faces similar claims over a diversity grant program.

AFL is using a different tactic against Target, alleging securities fraud. The suit says Target lost billions of dollars in market valuation over several days in May, coinciding with conservative backlash over LGBTQ Pride Month.

Miller was one of the voices that promoted a boycott of Target, writing on Twitter Inc., now known as X, “Don’t Shop @Target.”

Protestors against Pride Month merchandise outside of a Target store on June 1, 2023 in Miami, Fla.

Photographer: Joe Raedle/Getty Images

The plaintiff, a shareholder named Brian Craig, said Target’s board misled investors when it said it monitored risks related to environmental, social, and governance and DEI policies. The board “monitored only one side—i.e., whether it would face backlash from having too little ESG and DEI,” the suit says.

Target’s board didn’t monitor “whether its divisive ESG and DEI mandates would create social and political risk, such as customer backlash,” the complaint says.

Craig, who is suing as an individual, not on behalf of a class of shareholders, argues the value of his stock has dropped about $6,000 since May.

Benjamin Edwards, a professor in the William S. Boyd School of Law at the University of Nevada, Las Vegas, called the fraud claims “dubious.”

“The best way to understand this document is not as a real complaint,” said Edwards, who used to work as a securities defense lawyer at Skadden, Arps, Slate, Meagher & Flom LLP. “This is a political document aimed at harassing Target.”

One problem, he said, is the complaint doesn’t point to a false statement that led Craig to either buy or sell the stock, which is required for a federal securities fraud claim. The suggestion that Target didn’t consider the risk of backlash also is questionable, experts said.

“To me this seems like a manufactured claim to go along with the ‘go woke, go broke’ line of thinking,” said Toby Galloway, chair of the securities litigation and enforcement group at Winstead PC, and a former attorney with the SEC. “It doesn’t strike me as a very serious securities fraud claim.”

An AFL attorney didn’t immediately respond to a request for comment.

‘Need to Be Prepared’

AFL may be building shareholder cases against other companies.

In May, the group posted on X soliciting shareholders from Bud Light’s parent company Anheuser-Busch InBev SA, Kohl’s Corp., and other businesses “promoting transgender, LGBTQ and PRIDE products and diminishing shareholder value.” Kohl’s, similar to Target, faced backlash over its Pride collection.

Noting increased scrutiny around DEI programs, Wachtell, Lipton, Rosen & Katz attorneys in a recent memo warned that companies “need to be prepared to face potential claims, in the court of law and in other public arenas, regardless of the merits of the claims.”

There are, on the other end of the spectrum, a growing number of suits—including securities fraud claims—accusing companies of falling short on their DEI promises.

Wells Fargo & Co., for example, faces a proposed securities fraud class action alleging the bank’s stock price dipped after media reports that the bank set up fake job interviews to meet in-house diversity guidelines. The case was recently dismissed, although shareholders have a chance to amend the complaint.

“We may see more social justice suits, or cases focusing on the ‘S’ of the ESG acronym, that present some kind of securities fraud angle, whether it’s a pro-ESG or anti-ESG stance,” Edwards, the Katten attorney, said.

Companies are discussing how to frame their disclosures in SEC filings and corporate reports, lawyers say. That can include whether—and how—to mention the risk of backlash when a company takes a pro-ESG stance.

“This is a case-specific analysis for every company,” Katten’s Edwards said.

But even companies with carefully worded disclosures may face fraud suits over their DEI programs. Target’s disclosures, for example, appear well-drafted to cover the relevant risks, Galloway said.

“If somebody has got an agenda that they want to assert, which is pretty clearly the case here, they’re probably going to do it if they can find any hook,” Galloway said.

The case is Craig v. Target Corp., M.D. Fla., Docket No. 2:23-cv-00599.