Lumber Liquidators 2015 Annual Report Download - page 36

Southern District of Illinois. Subsequently, we filed a motion to dismiss. Morris failed to respond to the
motion and, as a result, the lawsuit was dismissed without prejudice on November 10, 2015.
Ross Matter
On or about February 23, 2016, Joseph Ross and Linda Ross (collectively, ‘‘Ross’’) filed a purported
class action lawsuit in the Second Judicial District Court, State of Nevada, County of Washoe. Ross seeks the
certification of a class of individuals in the State of Nevada who purchased certain hardwood flooring products
produced in China (the ‘‘Ross Products’’). Ross alleges that the Ross Products are defective due to the Ross
Products being contaminated with certain wood-boring insects. In particular, Ross’s allegations include
(i) breach of warranty, (ii) negligence, (iii) strict liability, (iv) negligent misrepresentation, (v) willful
misconduct, and (vi) unjust enrichment. In the complaint, Ross seeks (i) general and special damages
according to proof in excess of fifty thousand dollars, (ii) attorneys’ fees and costs according to proof,
(iii) prejudgment and post-judgment interest on all sums awarded, according to proof at the maximum legal
rate, (iv) costs of the lawsuit incurred, (v) restitution as authorized by law, (vi) punitive damages as authorized
by law, and (vii) specific performance under our express warranties. We dispute Ross’s claims and intend to
defend the 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, we
cannot estimate the reasonably possible loss or range of loss that may result from this action.
Derivative Litigation Matters
Consolidated Cases
On or about March 11, 2015, R. Andre Klein (‘‘Klein’’) filed a shareholder derivative suit in the
United States District Court for the Eastern District of Virginia against our directors at that time, as well as
our Senior Vice President, Supply Chain, former Chief Merchandising Officer, and former Chief Financial
Officer (collectively, the ‘‘Klein Defendants’’). On or about April 1, 2015, Phuc Doan (‘‘Doan’’) filed a
shareholder derivative suit in the United States District Court for the Eastern District of Virginia against our
directors at that time, as well as our Senior Vice President, Supply Chain, former Chief Merchandising Officer,
and former Chief Financial Officer (collectively, the ‘‘Doan Defendants’’). On or about April 15, 2015,
Amalgamated Bank, as trustee for the Longview 600 Small Cap Index Fund, filed a shareholder derivative suit
in the United States District Court for the Eastern District of Virginia against our directors at that time, as
well as our former Chief Merchandising Officer, former Chief Financial Officer, Senior Vice President, Supply
Chain and its former Chief Executive Officer and President (collectively, the ‘‘Amalgamated Defendants,’’ and,
with the Klein and Doan Defendants, the ‘‘Individual Defendants’’). We were named as a nominal defendant
only in these three suits.
On May 27, 2015, the court consolidated the Klein, Doan, and Amalgamated Bank suits, appointed lead
plaintiffs and lead counsel for the consolidated action, and captioned the consolidated action as In re Lumber
Liquidators Holdings, Inc. Shareholder Derivative Litigation. In the complaints, Klein’s, Doan’s and
Amalgamated Bank’s (collectively, ‘‘Plaintiffs’’) allegations include (i) breach of fiduciary duties, (ii) abuse of
control, (iii) gross mismanagement, (iv) unjust enrichment, (v) insider trading, (vi) corporate waste,
(vii) common-law conspiracy, and (viii) statutory conspiracy. Plaintiffs did not quantify any alleged damages
in their complaints but, in addition to attorneys’ fees and costs, Plaintiffs seek (1) a declaration that the
Individual Defendants have breached and/or aided and abetted the breach of their fiduciary duties to us, (2) a
determination and award to us of the damages sustained by us as a result of the violations of each of the
Individual Defendants, jointly and severally, (3) a directive to us and the Individual Defendants to take all
necessary actions to reform and improve our corporate governance and internal procedures to comply with
applicable laws and to protect us and our shareholders from a repeat of the events that led to the filing of this
action, (4) a determination and award to us of exemplary damages in an amount necessary to punish the
Individual Defendants and to make an example of the Individual Defendants to the community according to
proof of trial, (5) the awarding of restitution to us from the Individual Defendants, (6) a requirement that we
establish corporate policies and procedures prohibiting the use of Chinese manufacturers of its products, (7) a
prohibition against us using wood or wood products from the Russian Far East, (8) a requirement that we
establish corporate policies and procedures to ensure compliance with CARB standards for all of our flooring
products, and (9) disgorgement and payment to us of all compensation and profits made by the Individual
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