Fashion Law: Lululemon Controversy and the Recalled Sheer Pants
Our Fashion Law column today is about the controversial sheer yoga pants by Lululemon and the consequences of defective product fabric or product management.
Last week, Lululemon Athletica filed a motion to dismiss the consolidated shareholder’s securities fraud class action, arguing that the plaintiff shareholders failed to prove that the company made any false or misleading statements.
You may recall that in March, Lululemon removed hundreds of thousands of yoga pants that contained luon fabric from its shelves. There was a mass recall on the see-through yoga pants. The luon yoga pants reportedly accounted for nearly 20% of the company’s sales of women’s pants, worth approximately $40-45 million in revenue.
Lululemon Controversy vs. the Recalled Sheer Pants
The shareholder action, brought in November, claimed that the defendant company knew, or had reason to know, of the product defect, but still attempted to hide it by using discount tactics. The presumption was supported by the allegation that Lululemons CEO, Christine Day, suspiciously sold her personally owned stock the day before she announced her departure from the company. She reaped nearly $200 million from the sale. But, her departure caused the stock value to significantly decline. The shareholder’s also claimed that Lululemon’s false and misleading statements regarding quality control processes and the resulting poor product quality caused investors to suffer loss, as the price of Lululemon stock declined after the defect and product recall were announced.
The defendant company argued that it is implausible to believe that it intended to sell the nearly sheer yoga pants and hope that consumers would not notice. The company disclosed in real time its efforts to recall and fix the yoga pants. Further, the shareholders failed to prove that the drop in stock price was related to the defect, the recall and Day’s departure from the company.
If the court does not dismiss the action, the defendants asked that the action be stayed until the U.S. Supreme Court rules on Halliburton Co.’s appeal. That appeal would make it harder for investors to bring class actions for fraud. Investors would have to prove that they actually relied on misleading company statements, and suffered harm as a result.