Lumber Liquidators 2015 Annual Report Download - page 82

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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 10. Commitments and Contingencies − (continued)
On October 12, 2015, as part of its required discovery disclosures, NWBT identified a valuation of its
business of approximately $2,800 as the basis for its compensatory damages claim. Subsequently, the
Company filed a motion for summary judgment seeking dismissal of NWBT’s case. On December 21, 2015,
the Court granted the Company’s motion for summary judgment and dismissed the two remaining causes of
action in NWBT’s complaint. On January 20, 2016, NWBT filed a notice of appeal in connection with the
trial court’s dismissal of NWBT’s case.
In light of the trial court’s ruling and the Company’s views regarding the merits of NWBT’s appeal, the
likelihood of a material loss in connection with this matter is now remote.
TCPA Matter
On or about March 4, 2014, Richard Wade Architects, P.C. (‘‘RWA’’) filed a lawsuit in the United States
District Court for the Northern District of Illinois (the ‘‘RWA Lawsuit’’), which was subsequently amended,
alleging that the Company violated the Telephone Consumer Protection Act (‘‘TCPA’’), the Illinois Consumer
Fraud Act and the common law by sending an unsolicited facsimile advertisement to RWA and a proposed
class. RWA sought recourse on its own behalf as well as other similarly situated parties who are members of
the proposed class that received unsolicited facsimile advertisements from the Company. The TCPA provides
for recovery of actual damages or five hundred dollars for each violation, whichever is greater. If it is
determined that a defendant acted willfully or knowingly in violating the TCPA, the amount of the award may
be increased by up to three times the amount provided above.
Although the Company believed it had valid defenses to the claims asserted, it entered into a settlement of
the claims in the RWA Lawsuit. On September 3, 2015, the Court entered an order granting final approval to the
settlement and certifying a settlement class. Under the settlement agreement, the Company paid a total of $300
including the plaintiffs’ attorneys’ fees, class notice and administration costs, a sum to RWA and cash payments to
members of the settlement class who file valid claims. The settlement amount was accrued in 2014 and was paid
into an escrow fund on August 18, 2015. The settlement payment was released to class counsel on October 16,
2015 after the final approval order became a final and non-appealable order. Settlement payments to class
members who submitted claims have now been issued by the claims administrator, with a final accounting of the
settlement fund to be filed with the court by March 4, 2016.
Prop 65 Matter
On or about July 23, 2014, Global Community Monitor and Sunshine Park LLC (together, the ‘‘Prop 65
Plaintiffs’’) filed a lawsuit, which was subsequently amended, in the Superior Court of the State of California,
County of Alameda, against the Company. In the amended complaint, the Prop 65 Plaintiffs allege that the
Company violated California’s Safe Drinking Water and Toxic Enforcement Act of 1986, Health and Safety
Code section 25249.5, et seq. (‘‘Proposition 65’’). In particular, the Prop 65 Plaintiffs allege that the Company
failed to warn consumers in California that certain of the Company’s products (collectively, the ‘‘Products’’)
emit formaldehyde in excess of the applicable safe harbor limits. The Prop 65 Plaintiffs did not quantify any
alleged damages in their amended complaint but, in addition to attorneys’ fees and costs, the Prop 65 Plaintiffs
seek (i) equitable relief involving the reformulation of the Products, additional warnings related to the
Products, the issuance of notices to certain of the purchasers of the Products (the ‘‘Customers’’) and the
waiver of restocking fees for Customers who return the Products and (ii) civil penalties in the amount of two
thousand five hundred dollars per day for each violation of Proposition 65.
The Company disputes the claims of the Prop 65 Plaintiffs and intends to defend the matter vigorously.
The Company’s best estimate of the probable loss that may result from this action is approximately $900,
which was accrued in the fourth quarter of 2015. The Company believes that there is at least a reasonable
possibility that a loss may differ from the amount accrued, but it is unable to estimate the amount at this time.
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