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In re Lululemon Securities Litigation

United States District Court, S.D. New York

April 18, 2014


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For Louisiana Sheriffs Pension & Relief Fund, Louisiana Sheriffs Pension & Relief Fund, Lead Plaintiffs: Gerald H. Silk, Hannah Elizabeth Ross, Katherine Mccracken Sinderson, Laura Helen Posner, LEAD ATTORNEYS, Bernstein Litowitz Berger & Grossmann LLP, New York, NY.

For Houssam Alkhoury, individually and on behalf of all others similarly situated, Plaintiff: David Avi Rosenfeld, Robbins Geller Rudman & Dowd LLP (LI), Melville, NY.

For Lululemon Athletica Inc., Christine McCormick Day, Defendants: Joseph S. Allerhand, LEAD ATTORNEY, Weil, Gotshal & Manges LLP (NYC), New York, NY; Caroline Jane Hickey, New York Legal Assistance Group, New York, NY.

For Dennis J. Wilson, Defendant: 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.


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KATHERINE B. FORREST, United States District Judge.

This putative securities class action was commenced on July 2, 2013. Following the appointment of lead plaintiff and lead plaintiff's counsel on October 1, 2013, and the filing of a Consolidated Complaint on November 1, 2013, lead plaintiff filed a Consolidated Amended Complaint (" CAC" ) on January 15, 2014 with leave of the Court. In the CAC, lead plaintiff alleges violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder by defendants lululemon athletica inc. (" lululemon," or the " company" ), lululemon founder and director Dennis J. Wilson, and former chief executive officer (" CEO" )

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Christine McCormick Day (Wilson and Day are hereinafter referred to as the " Individual Defendants" ). (CAC ¶ ¶ 153-57, ECF No. 28.) Lead plaintiff also alleges violations of Section 20(a) of the Securities Exchange Act against the Individual Defendants. (Id. ¶ ¶ 158-61.) Lead plaintiff alleges that stock declines related to the events at issue resulted in investor losses of approximately $2 billion. (Id. ¶ 74.)

Boiled down to a summary version, lead plaintiff alleges that if only lululemon had someone try on its black luon yoga pants before they shipped, it would have realized they were sheer; similarly, if lululemon had only had someone exercise in certain athletic wear (enough to produce sweat), it would have realized that the colors bled. As a result, lead plaintiff alleges that defendants' various statements referencing, inter alia, the high quality of lululemon's products and the steps the company took to fix the quality issues were materially false or misleading.

This narrative requires the Court to stretch allegations of, at most, corporate mismanagement into actionable federal securities fraud. This is not the law. See, e.g., Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 477-79, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977).

On February 18, 2014, defendants moved to dismiss the CAC in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that it fails to adequately allege the key elements of a cause of action under Section 10(b) and Rule 10b-5: falsity, scienter, and loss causation. The motions became fully briefed on March 24, 2014, and the Court held argument on the motions on April 4, 2014.

For the reasons set forth below, defendants' motions to dismiss are GRANTED, and the CAC is DISMISSED in its entirety.[1]


Lead plaintiff, the Louisiana Sheriffs' Pension & Relief Fund, has brought this action on behalf of itself and those who purchased or acquired lululemon stock during the period from September 7, 2012 through January 10, 2014 (the " Class Period" ). (CAC at 1.) Lululemon designs and makes athletic apparel. (Id. ¶ 20.) Among its most popular products are fitness pants made from a proprietary material known as " luon" --an amalgamation of 86% nylon and 14% lycra. (Id. ¶ 21.) Before the Class Period, luon athletic pants accounted for at least 17% of the company's sales of women's bottoms and 6% of the company's total sales (or $80 million during 2012). (Id.)

Lululemon does not manufacture luon or its products--it outsources those functions to third parties on a contract basis. (Id. ¶ 22.) For the past ten years, the company's luon garments have been produced by Taiwan-based Eclat Textile Co. (" Eclat" ). (Id.) The company's robust sales of its apparel led to significant growth. (Id. ¶ 31.) The price of its stock also rose significantly. (Id. ¶ 33.)

Defendant Wilson founded lululemon in 1998 and has served as the Chairman of the Board of Directors since that time. (Id. ¶ 17.) Wilson opened the company's first store in 2000, and the company went public in 2007. (Id. ¶ 20.) Wilson signed

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the company's Form 10-K for fiscal year 2012 filed with the SEC during the Class Period. (Id. ¶ 17.)

Defendant Day joined the company in 2008 and was promoted to CEO in July of that year; her resignation as CEO was publicly announced on June 10, 2013. (Id. ¶ ¶ 18, 72.) Day signed all of the company's Form 10-K's and Form ...

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