Lumber Liquidators 2012 Annual Report Download - page 61

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements—(Continued)
(amounts in thousands, except share data and per share amounts)
As described in Note 6, the Company leases a number of its store locations and Corporate Headquarters from Controlled
Companies.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, subject to claims and disputes arising in the normal course of business. In the
opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, the ultimate
liability of the Company in connection with these matters is not expected to have a material adverse effect on the Company’s
results of operations, financial position or cash flows.
On May 21, 2012, Harbor Freight Tools USA, Inc. and Central Purchasing, LLC (together, the “Plaintiffs”) filed an
action, which was subsequently amended, in the Superior Court for the County of Los Angeles, California against the
Company and certain purported Company employees (the “State Court Action”). In the State Court Action, the Plaintiffs
contended that they previously employed several individuals now working for the Company, and alleged, among other
claims, the improper use and possession by the Company and/or its employees of trade secrets belonging to the Plaintiffs and
unfair business practices. The Plaintiffs have sought unspecified monetary damages, punitive damages, injunctive, equitable
and other relief.
On December 18, 2012, the Plaintiffs filed suit against the Company in the United States District Court for the Central
District of California. In that suit, in addition to the claims raised as in the State Court Action, the Plaintiffs alleged that the
Company violated certain of the Plaintiffs’ copyrights. The Plaintiffs have sought, among other things, a preliminary
injunction precluding the Company from using the Plaintiffs’ purported confidential information and selling seven specific
tool products. The Plaintiffs dismissed the State Court Action as it pertained to the Company but it remains pending as to the
individual employees.
The Company strongly disputes the Plaintiffs’ contentions and has been litigating this matter aggressively. Nevertheless,
the parties engaged in settlement processes and have reached a tentative understanding on certain matters. The Company,
however, cannot make any assurance that this matter will ultimately settle. In the event that a settlement is not consummated,
the Company will continue to defend this matter vigorously and believes that the ultimate outcome of the litigation will not
have a material adverse effect on its results of operations, financial position or cash flows. Based upon the proceedings to
date, the Company has recorded an accrual of approximately $500 in the fourth quarter of 2012 as its best estimate of the
probable loss at this time.
On August 30, 2012, Jaroslaw Prusak, a purported customer (“Prusak”), filed a putative class action lawsuit against the
Company in the United States District Court for the Northern District of Illinois. Prusak alleges that the Company willfully
violated the Fair and Accurate Credit Transactions Act (“FACTA”) amendment to the Fair Credit Reporting Act in
connection with printed credit card receipts provided to its customers. Prusak, for himself and the putative class, seeks
statutory damages of no less than $100 and no more than $1,000 per violation, punitive damages, attorney’s fees and costs,
and other relief. The Company intends to defend this matter vigorously. Given the uncertainty of litigation, the preliminary
stage of the case and the legal standards that must be met for, among other things, class certification and success on the
merits, no outcome can be predicted at this time. Based upon the current status of the matter and information available, the
Company does not, at this time, expect the outcome of this proceeding to have a material adverse effect on its results of
operations, financial position or cash flows.
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