Lumber Liquidators 2015 Annual Report Download - page 37

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Defendants, and each of them, at any time during which such Individual Defendants were breaching fiduciary
duties owed to us and/or committing, or aiding and abetting the commitment of, corporate waste.
Additionally, in May 2015, we received a shareholder demand from Timothy Horton (‘‘Horton’’). The
allegations and demands made by Horton overlap substantially with those raised in the consolidated action.
On June 11, 2015, the Special Committee of the Board of Directors (the ‘‘Special Committee’’) exercised its
authority to create a three-person Demand Review Committee, which is comprised of three independent
directors and tasked with investigating the claims made in the consolidated action and the Horton demand
letter and making a recommendation to the board of directors as to whether it would be in the best interests of
the Company to pursue any of those claims. Thereafter, the members of the Demand Review Committee filed
a motion to stay the consolidated action pending completion by the Demand Review Committee of its
investigation and recommendation to the board of directors.
Further, in the consolidated action, we filed a motion to dismiss based on the failure to make a demand
upon our board of directors, and the Individual Defendants filed a motion to dismiss based on the failure to
state a claim. These motions are fully briefed and pending before the court. Based on the uncertainty of
litigation and the preliminary stage of the case, we cannot estimate the reasonably possible loss or range of
loss that may result from this action.
Costello Matter
On or about March 6, 2015, James Costello (‘‘Costello’’) filed a shareholder derivative suit in the
Court of Chancery of the State of Delaware against our directors at that time (the ‘‘Costello Derivative
Defendants’’). We were named as a nominal defendant only. On April 1, 2015, the case was voluntarily
stayed. On June 19, 2015, the stay was lifted at Costello’s request and Costello subsequently filed an
amended complaint. The amended complaint added our Senior Vice President, Supply Chain, former Chief
Merchandising Officer and former Chief Financial Officer as defendants (along with the Derivative
Defendants, the ‘‘Costello Defendants’’). Costello’s allegations include (i) breach of fiduciary duties, (ii) gross
mismanagement, (iii) unjust enrichment, and (iv) insider selling and the misappropriation of certain of our
information in connection therewith. Costello did not quantify any alleged damages in the amended complaint
but, in addition to attorneys’ fees and costs, Costello seeks (i) against the Costello Defendants and in our
favor the amount of damages sustained by us as a result of the Costello Defendants’ breaches of fiduciary
duties, gross mismanagement and unjust enrichment, (ii) extraordinary equitable and/or injunctive relief,
including attaching, impounding, imposing a constructive trust on or otherwise restricting the proceeds of the
Costello Defendants’ trading activities or their assets, (iii) awarding to us restitution from the Costello
Defendants, and each of them, and ordering disgorgement of all profits, benefits and other compensation
obtained by the Costello Defendants; and (iv) additional equitable and/or injunctive relief that would require
us to institute certain compliance policies and procedures.
We filed a motion to dismiss the amended complaint based on the failure to make a demand upon our
board of directors and the Costello Defendants filed a motion to dismiss based on the failure to state a claim
and the exculpatory provision in the Company’s Certificate of Incorporation. On September 14, 2015, the
parties entered into a stipulation voluntarily staying the case until the Demand Review Committee has an
opportunity to investigate Costello’s allegations and make a recommendation to our board of directors, and the
board of directors has the opportunity to act on that recommendation. The court has approved the stipulation.
Based on the uncertainty of litigation and the preliminary stage of the case, we cannot estimate the
reasonably possible loss or range of loss that may result from this action.
McBride Matter
On or about March 27, 2015, James Michael McBride (‘‘McBride’’) filed a shareholder derivative suit in
the Circuit Court of the City of Williamsburg and County of James City, Virginia against our directors at that
time, as well as our former Chief Merchandising Officer and former Chief Financial Officer (collectively,
the ‘‘McBride Defendants’’). We were named as a nominal defendant only. In the complaint, McBride’s
allegations include (i) breach of fiduciary duties, (ii) gross mismanagement, (iii) abuse of control, (iv) insider
trading, and (v) unjust enrichment. McBride did not quantify any alleged damages in his complaint but, in
addition to attorneys’ fees and costs, McBride seeks (i) the awarding, against the McBride Defendants, and in
favor of us, of damages sustained by us as a result of certain of the McBride Defendants’ breaches of their
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