In a motion filed on Wednesday, “yoga-inspired athletic apparel company” Lululemon asked Judge Forrest to dismiss a securities fraud claim brought against the company and its CEO. In the complaint, a putative class of Lululemon shareholders alleged that the company hid internal turmoil and quality control issues that had led to a recall of black “luon” yoga pants that proved to be transparent when the wearer bent at the waist. The internal problems only came to light, the plaintiffs allege, when Lululemon’s CEO unexpectedly resigned months after the see-through pants were recalled. Lululemon calls the plaintiffs’ case an attempt “to retrofit the March 2013 black luon issue into a securities fraud.” Lululemon argues:
In contrast to many securities class actions in this Court, this case does not involve error-laden financial statements, sudden write-downs of complex financial products, or a failed business model. Lululemon discovered a significant product defect, and, consistent with its brand integrity and core values, promptly disclosed the problem and strengthened its quality control systems to address the root causes. After successfully navigating the issue, Lululemon is now stronger than ever, with sales, profits, and earnings that are significantly higher than its results a year ago, before the start of the alleged Class Period. Lululemon suffered a highly public, embarrassing, and painful misstep. But the Complaint does not convert this business misstep into an adequately pleaded claim for securities fraud.