The lawsuit claimed Lululemon had defrauded its shareholders by purposely covering up the issue and glossing over its inability to address shortfalls. The suit said the company misrepresented its quality control and basically tried to sweep the whole thing under the rug while Lululemon lost $2 billion in market value due to the recall.
The U.S. District judge on the case in Manhattan said in a draft decision that the investors’ argument that Lululemon’s failure to properly test the pants, ostensibly on live people to see how they did in action before selling them doesn’t constitute fraud, reports Reuters.
“We are not yet at a point when an apparel company’s failure to employ testing by live models renders statements touting high quality false and misleading,” she wrote. “It is only reasonable to assume that if Lululemon secretly knew that the (alleged) fix for its quality issues was simply to employ more people to wear its yoga pants and exercise, it would have done so — rather than the alternative of losing $2 billion in market capitalization.”
The judge also issued draft dismissals in two other lawsuits that sought to hold current and former executives at the company liable for damages, because those suits didn’t address “red flags.” Those plaintiffs can try their cases again in the future, she said.
The company’s had a spate of bad publicity since the luon fabric snafu a year ago, including when its former executive and company founder Chip Wilson said its pants weren’t made for all body types, meaning if they don’t fit, it’s your own fault for being too big.
We’re still waiting to hear if the company has decided to go with my colleague Laura Northrup’s idea of a plus-sized line called Lulumelon.