by Tanner Burt
Diversity, Equity, and Inclusion, also known as “DEI,” has become shorthand for the series of policies and procedures designed to encourage representation and participation of people of different races, ethnicities, religions, sexualities, genders, ages, disabilities, and classes.[1] Heightened public focus on racial injustice within the past decade has included support from large corporations, with many creating DEI committees, enacting DEI policies, and investing millions in promoting racial equality.[2] Public response to DEI is divided, with some companies receiving support from their consumers for their DEI initiatives and others facing harsh backlash.[3] While public support for DEI had risen steadily initially, the Supreme Court’s 2023 ban on affirmative action in college admissions marked a stark downturn in public support for DEI policies.[4]
In May 2023, Target enacted multiple DEI campaign initiatives to celebrate “pride month.”[5] Instead of the increase in revenue from spiking public support they had hoped for, Target faced backlash to the campaign through customer boycotts.[6] As the boycotts ensued, Target’s stock fell from closing prices of $160.96 to $124.12 between May 17th, 2023, and June 14th.[7] Target stock would drop as low as $105.01 in October 2023 before finally climbing again in 2024.[8] However, despite Target’s stock value stabilizing, executives rolled back their DEI initiatives on January 24th, leading to another round of boycotting.[9] The flatlining of sales from the boycott left Target short of its projected Q3 earnings, and company executives watched as Target stock fell 22% in just one day.[10] After watching Target’s stock value fall from $156 on November 19th, 2024, to $121.72 on November 20th, shareholders seem to have been spurred into action to seek redemption for their lost corporate value.[11]
A class-action lawsuit on behalf of the City of Riviera Beach Police Pension Fund and other stockholders who acquired Target common stock between August 26th, 2022, and November 19th, 2023, has been filed against Target and their top executives.[12] Shareholders claim Target violated the Securities and Exchange Act of 1934 (“Exchange Act”), Sections 10(b), 14(a) and 20(a).[13] Their claim asserts Target executives knowingly failed to disclose the risk of harm from the DEI initiatives and concealed backlash from its May 2023 Pride Month campaign from shareholders.[14] If the facts show the shareholder’s claim to be accurate, Target will likely face liability to shareholders.[15]
Six basic elements identify a violation of the Exchange Act § 10(b), also known as federal securities fraud: “(1) a material misrepresentation (or omission);” “(2) scienter, i.e., a wrongful state of mind;” “(3) a connection with the purchase or sale of a security;” “(4) “reliance;” “(5) economic loss;” “(6) loss causation.”[16] The facts in the Target shareholder complaint allege that the injury occurred because of the material omission of information about potential harm to stock prices; this artificially inflated the value of Target stock and led shareholders to lose capital because they relied on the executives’ failure to mention the harm.[17] While these facts, if uncontested, would likely fulfill the first, third, fourth, fifth, and sixth elements, a deeper analysis of the facts will be necessary to determine whether the situation meets the second element.[18]
The Supreme Court’s interpretation of the second element’s “scienter” requirement holds that knowing or intentional misconduct satisfies the element.[19] The Court has previously held that the scienter element requires more than negligent nonfeasance, such as the knowing omission of a material fact.[20] Shareholders assert that because the Target executive had knowledge of the potential for stockholder harm from their Pride campaign and knowingly omitted the information when discussing the impacts with shareholders, the court should find their actions to be more egregious than negligent nonfeasance.[21] If the court determines that the Target executives’ omission was knowledgeable, they will likely face liability.[22]
The Target shareholders’ suit for securities fraud may have fiscal impacts on the retailer, as well as other corporations that have enacted DEI policies.[23] The shareholders’ success in the lawsuit would likely result in a significant payout and a change in the company’s executive makeup.[24] Additionally, a win for Target’s shareholders could create an expectation among courts and shareholders that corporate executives will caveat social policies like DEI to their voting shareholders as both potentially beneficial and harmful. This responsibility could leave such executives accountable for presenting shareholders with the potential corporate harm from enacting DEI policies, in addition to the possible harm from not meeting self-set DEI quotas.[25] While a win for Target’s shareholders might have immediate effects on Target’s annual profit margins and competitiveness amongst other retailers, it might also lead to a greater responsibility for other executives to consider when suggesting the adoption of social policies to their shareholders.[26]
[1] See Michael Boyles, DEI: What It Is & How to Champion It in the Workplace, Harv. Bus. Sch. Online (Oct. 3, 2023), https://online.hbs.edu/blog/post/what-is-dei (defining DEI).
[2] See John Yang et al., The History of Diversity, Equity and Inclusion Efforts in America, PBS News (Feb. 8, 2025, 5:40 PM), https://www.pbs.org/newshour/show/the-history-of-diversity-equity-and-inclusion-efforts-in-america.
[3] See id.; Emily Stewart, The Stealth War on DEI, Bus. Insider (Feb. 13, 2025, 4:17 AM), https://www.businessinsider.com/dei-policies-delete-trump-disney-general-motors-pepsi-diversity-target-2025-2.
[4] See Yang, supra note 2; Stewart, supra note 3 (discussing the increasing number of companies ending their DEI initiatives in the face of negative public response, such as Walmart, Google, and General Motors).
[5] See Jonathan Stampel, Target is Sued for Defrauding Shareholders About DEI, Reuters, Feb. 4, 2025, https://www.reuters.com/business/retail-consumer/target-is-sued-defrauding-shareholders-about-dei-2025-02-03/.
[6] See id. (discussing how the public response to Target’s Pride Month campaign was so negative that it forced the retailer to remove several products from their shelves out of concern for employee safety).
[7] Caitlin M. Moyna, Grant & Eisenhofer Files Class Action Lawsuit Against Target Corporation on Behalf of Pension Fund, Bus. Wire (Jan. 31, 2025, 5:26 PM), https://www.businesswire.com/news/home/20250131721136/en/.
[8] Id.
[9] See Stewart, supra note 3 (discussing how Target followed a vast number of companies in disengaging their DEI initiatives in the face of souring public opinion); Yang, supra note 2; Stampel, supra note 5.
[10] See Target Stock Plummets After Q3 Earnings Miss, Mass Mkt. Retailers, (Nov. 20, 2024, 12:26 PM), https://massmarketretailers.com/target-stocks-plummet-after-q3-earnings-miss/; Pamela N. Danziger, Target Hit with Shareholder Lawsuit, Claiming Investors Were Defrauded About DEI Risks, Forbes (Feb. 4, 2025, 12:45 PM), https://www.forbes.com/sites/pamdanziger/2025/02/04/target-hit-with-shareholder-lawsuit-claiming-investors-were-defrauded-about-dei-risks/.
[11] Moyna, supra note 7; see Mallory Culhane, Target, Executives Face Shareholder Lawsuit over DEI Initiatives, Bloomberg L. (Feb. 3, 2025, 12:36 PM), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/social-justice/X8EO1V68000000.
[12] See Culhane, supra note 11; Complaint, City of Riviera Beach Police Pension Fund v. Target Corp., Docket No. 2:25-cv-00085-JLB-KCD (M.D. Fla. Jan 31, 2025); Moyna, supra note 7 (noting that all who purchased common stock from August 26, 2022, through November 19, 2024, would be allowed to join as plaintiffs to the suit).
[13] Complaint at ¶ 1-3, Target Corp., Docket No. 2:25-cv-00085-JLB-KCD (“The claims asserted herein are alleged against Target and certain of the Company’s senior executives (collectively, ‘Defendants’), and arise under Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 (the ‘Exchange Act’) and Rules 10b-5 and 14a-9 promulgated thereunder.”); see Moyna, supra note 7.
[14] See Complaint at ¶ 2-5, Target Corp., Docket No. 2:25-cv-00085-JLB-KCD; Culhane, supra note 11.
[15] See Complaint at ¶ 29-105, Target Corp., Docket No. 2:25-cv-00085-JLB-KCD (presenting the facts on which the shareholder’s claims are based).
[16] See Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005) (finding cases involving publicly traded securities and purchases or sales in public securities markets to be dependent on six basic elements, before identifying relevant authority on each element).
[17] See Complaint at ¶ 29-105, Target Corp., Docket No. 2:25-cv-00085-JLB-KCD; Culhane, supra note 11.
[18] See Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988) (citing TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 448-49 (1976)) (finding that “[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote” before holding that the presumption of reliance is supported by the fraud-on-the-market theory and should be maintained); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731-32 (1975) (finding actions under § 10(b) to be limited to actual purchasers and sellers of securities); 15 U.S.C.A. § 78u-4(b)(4) (West) (“In any private action arising under this chapter, the plaintiff shall have the burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.”); Practical Law Securities Litigation and White Collar Crime, Exchange Act: Section 10(b) Pleading and Proving Economic Loss (2025), Westlaw W-031-7842 (finding economic harm to have occurred when the plaintiff proves that it cannot recover its capital investment due to losses incurred in connection with the purchase or sale of securities).
[19] See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 212-14 (1976).
[20] See id. at 212-15 (“Recognizing that § 10(b). . . might be held to require proof of more than negligent nonfeasance by Ernst & Ernst as a precondition to the imposition of civil liability . . . .”).
[21] See Complaint at ¶ 29-105, Target Corp., Docket No. 2:25-cv-00085-JLB-KCD; Culhane, supra note 11; Ernst & Ernst, 452 U.S. at 197 (finding that § 10(b) was intended to apply to “knowing or intentional misconduct”).
[22] See Complaint, Target Corp., Docket No. 2:25-cv-00085-JLB-KCD, at ¶ 29-105; Ernst & Ernst, 452 U.S. at 197.
[23] See Culhane, supra note 11 (discussing the damages that the shareholders are seeking from Target); Jonathan Stempel, Target is Sued for Defrauding Shareholders About DEI, Yahoo Fin. (Feb. 3, 2025), https://finance.yahoo.com/news/target-sued-defrauding-shareholders-dei-224901614.html (identifying other businesses who have enacted similar DEI policy strategies as Target has).
[24] See Brice Van Elswyk, What Are the Legal Consequences of Committing Securities Fraud?, Van Elswyk L. (Mar. 26, 2024), https://vanelswyklaw.com/what-are-the-legal-consequences-of-committing-securities-fraud/ (discussing the short-term and long-term impacts to a company resulting from a conviction of securities fraud).
[25] See Which U.S. Companies Are Pulling Back on Diversity Initiatives, Reuters, Feb. 12, 2025, https://time.com/7209960/companies-rolling-back-dei/ (identifying other companies that have taken similar paths to DEI initiative layout, which could quickly be faced with the responsibility of discussing harm from DEI policies, such as Walmart, McDonald’s, and Lowe’s).
[26] Id.; see Culhane, supra note 11.
