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Canty v. Day

United States District Court, S.D. New York

April 9, 2014

THOMAS CANTY, Plaintiff,
v.
CHRISTINE MCCORMICK DAY, et al., Defendants. TAMMY M. FEDERMAN, Plaintiff,
v.
CHRISTINE MCCORMICK DAY, et al., Defendants

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For Thomas Canty, derivatively on behalf of Lululemon Athletica Inc., Plaintiff (1:13-cv-05629-KBF): Brett D Stecker, Harwood Feffer LLP, New York, NY; Brett D. Stecker, Christopher L. Nelson, PRO HAC VICE, The Weiser Law Firm, P.C., Berwyn, PA; Carl William Margrabe, III, Jennifer Elizabeth Traystman, Law Offices of Curtis V. Trinko, New York, NY; Curtis Victor Trinko, Law Offices of Curtis V. Trinko, LLP, New York, NY; David Corey Katz, Weiss & Lurie, New York, NY; Richard Adam Acocelli, Jr, WeissLaw LLP, New York, NY; Robert Weiser, PRO HAC VICE, The Weisler Law Firm, Wayne, PA.

For Hallandale Beach Police Officers And Firefighters' Personnel Retirement Fund, Plaintiff (1:13-cv-05629-KBF, 1:13cv5977): Gustavo Fabian Bruckner, Pomerantz LLP, New York, NY.

For Christine McCormick Day, John E. Currie, Sheree Waterson, Martha A.M. Morfitt, Michael Casey, Robert Bensoussan, Roann Costin, William Glenn, Rhoda M. Pitcher, Thomas G. Stemberg, Jerry Stritzke, Emily White, Defendants (1:13-cv-05629-KBF): Joseph S. Allerhand, Stephen Alan Radin, LEAD ATTORNEYS, Weil, Gotshal & Manges LLP (NYC), New York, NY.

For Dennis J. Wilson, Defendant (1:13-cv-05629-KBF, 1:13cv5977): Audra Jan Soloway, Michele S. Hirshman, LEAD ATTORNEYS, Brette Morgan Tannenbaum, Paul, Weiss, Rifkind, Wharton & Garrison LLP (NY), New York, NY; Michael T Gass, Choate Hall & Stewart LLP, Boston, MA; Stuart Marc Glass, Choate Hall & Stewart, Boston, MA.

For Lululemon Athletica, Inc., Nominal Defendant (1:13-cv-05629-KBF, 1:13cv5977): Joseph S. Allerhand, Stephen Alan Radin, LEAD ATTORNEYS, Weil, Gotshal & Manges LLP (NYC), New York, NY.

For Laborers District Council Construction Industry Pension Fund, Intervenor Plaintiff (1:13-cv-05629-KBF): William H. Narwold, LEAD ATTORNEY, Motley Rice LLC (CT), Hartford, CT; Joshua C. Littlejohn, PRO HAC VICE, Motley Rice LLC (SC), Mount Pleasant, SC.

For Tammy M. Federman, Derivatively on behalf of Lululemon Athletica Inc., Plaintiff (1:13cv5977): David Corey Katz, LEAD ATTORNEY, Weiss & Lurie, New York, NY; James Evan Tullman, Richard Adam Acocelli, Jr, WeissLaw LLP, New York, NY.

For Christine Mccormick Day, Sheree Waterson, Martha A.M. Morfitt, Michael Casey, Robert Bensoussan, Roann Costin, William Glenn, Rhoda M. Pitcher, Thomas G. Stemberg, Jerry Stritzke, Emily White, Defendants (1:13cv5977): Joseph S. Allerhand, Stephen Alan Radin, LEAD ATTORNEYS, Weil, Gotshal & Manges LLP (NYC), New York, NY.

For Laborers District Counsel Construction Industry Pension Fund, Intervenor Plaintiff (1:13cv5977): William H. Narwold, LEAD ATTORNEY, Motley Rice LLC (CT), Hartford, CT.

OPINION

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OPINION & ORDER

KATHERINE B. FORREST, United States District Judge.

Plaintiffs Thomas Canty and Tammy M. Federman bring these derivative actions on behalf of nominal defendant lululemon athletica inc. (" lululemon" or the " company" ) against thirteen current or former lululemon directors or executives for violations of Section 14(a) of the Securities Exchange Act and Rule 14a-9 thereunder, as well as state law claims for breaches of fiduciary duties, arising out of " serious quality control problems" and " materially false and misleading statements" that were made concerning those problems. (See Am. Compl. ¶ ¶ 2, 209-238, ECF No. 20.) Plaintiffs' claims center around lululemon's March 2013 recall of one of its " flagship" products--its black luon yoga pants--and the events that followed, including the announcement of the departure of lululemon's chief executive officer (" CEO" ) and stock sales by its founder and Chairman of the Board of Directors in June 2013, (See id. ¶ ¶ 15-34.)

Plaintiffs originally filed these actions on August 12 and 23, 2013, respectively. On October 3, 2013, these actions were transferred to the undersigned and consolidated for pretrial purposes.[1] In an order dated October 24, 2013, and as discussed at the conference that day, the Court ordered plaintiffs to either file an amended complaint or designate one of the two previously filed complaints as the operative complaint. (ECF No. 9.)[2] On November 8, 2013, plaintiffs designated the complaint in Canty v. Day et al., as the operative complaint. (ECF No. 11.) Defendants thereafter moved to dismiss the operative complaint on December 11, 2013 pursuant to Federal Rule of Civil Procedure 23.1. (ECF Nos. 12-14.) By letter dated December 18, 2013, plaintiffs requested leave to file an amended complaint. (ECF No. 15.) The Court granted plaintiffs' request, indicating that it was its intention to rule on the sufficiency of the pleadings only once. (ECF No. 18.)

Plaintiffs thereafter filed an amended complaint on January 17, 2014. Defendants again moved to dismiss pursuant to Rule 23.1 on January 31, 2014, and the motion became fully briefed on February 21, 2014. The Court held argument on the motions on April 4, 2014.

For the reasons set forth below, defendants' motion to dismiss is GRANTED and these actions are DISMISSED without prejudice.

I. FACTS

A. The Parties

Plaintiffs Canty and Federman have been holders of lululemon stock since June 2011 and May 2010, respectively. (Am. Compl. ¶ ¶ 46, 47.)

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Defendants Robert Bensoussan, Michael Casey, RoAnn Costin, Christine McCormick Day, William Glenn, Martha A.M. Morfitt, Rhoda M. Pitcher, Thomas S. Sternberg, Jerry Strizke, Emily White, and Dennis J. Wilson (collectively, with the exception of Day and Wilson, the " Director Defendants" ) served as lululemon's Board of Directors on the date the instant actions were filed. (Id. 49-50, 53-61.) Director Defendants Casey, Morfitt, Glenn, and White served on the Board's Audit Committee during the " Relevant Period" (which is defined as 2012 to present). (Id. ¶ ¶ 1, 53, 54, 57, 61, 63.) Director Defendants Bensoussan, Casey, Pitcher, and Sternberg served on the Board's Nominating and Governance Committee during the Relevant Period. (Id. ¶ ¶ 54, 55, 58, 59, 64.)

Day served as lululemon's CEO from July 2008 until January 2014. (Id. ¶ 49.) Day's resignation was announced on June 10, 2013, but she remained with lululemon until her successor officially took over as CEO in January 2014. (Id.)

Wilson is lululemon's founder, and has been a member of the Board and the company's largest individual shareholder since 1998. (Id. ¶ 50.) Wilson has served as Chairman of the Board since 1998, but announced in December 2013 that, although he will remain on the board, he intends to resign as Chairman shortly before lululemon's annual meeting in June 2014. (Id.) The company's Annual Report on Form 10-K that was filed on March 21, 2013 states that Wilson " controls a significant percentage of our stock and is able to exercise significant influence over our affairs," and that he " is able to influence or control. . . the election of directors." (Id.)

Defendant John E. Currie has served as an Executive Vice President (" EVP" ) and CFO at lululemon since January 2007. (Id. ¶ 51.) Defendant Sheree Waterson served as Chief Product Officer until April 15, 2013, and previously served as EVP, General Merchandise Management and Sourcing beginning in June 2008. (Id. ¶ 52.) Neither Currie nor Waterson are alleged to be or to have been directors.

B. Lululemon

Nominal defendant lululemon is a Delaware corporation with its principal executive offices in Vancouver, British Columbia. (Id. ¶ ¶ 1, 48.)

Lululemon designs and sells premium athletic apparel and accessories, including yoga pants, shorts, and tops. (Id. ¶ 3.) Lululemon's business model involves selling garments at high prices (approximately $100 per pair of pants and $60 per shirt) based upon their purported high quality, offering minimal discounts, and maintaining low store inventory to drive demand. (Id. ¶ ¶ 3, 70, 142.) Lululemon's most important and popular ...


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