Lumber Liquidators 2015 Annual Report Download - page 84

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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)
transferred and consolidated in the Virginia Court. The consolidated case in the Virginia Court is captioned In
re: Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales, Practices and Products
Liability Litigation.
Pursuant to court order, plaintiffs filed a Representative Class Action Complaint in the Virginia Court on
September 11, 2015. The complaint challenged the Company’s labeling of its flooring products and asserted
claims under California, New York, Illinois, Florida and Texas law for fraudulent concealment, violation of
consumer protection statutes, negligent misrepresentation and declaratory relief, as well as a claim for breach
of implied warranty under California law. Thereafter, on September 18, 2015, plaintiffs filed the First
Amended Representative Class Action Complaint (‘‘FARC’’) in which they added implied warranty claims
under New York, Illinois, Florida and Texas law, as well as a federal warranty claim. The Company filed a
motion to dismiss and answered the FARC. The Virginia Court granted the motion as to claims for negligent
misrepresentation filed on behalf of certain plaintiffs, deferred as to class action allegations, and otherwise
denied the motion. The Company also filed a motion to strike nationwide class allegations and a motion to
strike all claims of personal injury made in class action complaints, on which the Virginia court has not yet
ruled. Discovery is now proceeding in this matter.
In addition, on or about April 1, 2015, Sarah Steele (‘‘Steele’’) filed a purported class action lawsuit in
the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations
include (i) strict liability, (ii) breach of implied warranty of fitness for a particular purpose, (iii) breach of
implied warranty of merchantability, (iv) fraud by concealment, (v) civil negligence, (vi) negligent
misrepresentation, and (vii) breach of implied covenant of good faith and fair dealing. Steele did not quantify
any alleged damages in her complaint but, in addition to attorneys’ fees and costs, Steele seeks
(i) compensatory damages, (ii) punitive, exemplary and aggravated damages, and (iii) statutory remedies
related to the Company’s breach of various laws including the Sales of Goods Act, the Consumer Protection
Act, the Competition Act, the Consumer Packaging and Labelling Act and the Canada Consumer Product
Safety Act.
The Company disputes the plaintiffs’ claims and intends to defend these matters vigorously. Given the
uncertainty of litigation, the preliminary stage of these cases and the legal standards that must be met for,
among other things, class certification and success on the merits, the Company cannot estimate the reasonably
possible loss or range of loss that may result from these actions.
In connection with the Products Liability Cases, on April 22, 2015, five of the Company’s general and
umbrella liability insurers brought an action in the United States District Court for the Eastern District of
Virginia, (the ‘‘Virginia Action’’). Through the Virginia Action, these insurers sought a declaratory judgment
that they were not obligated to defend or indemnify the Company in connection with the lawsuits asserted
against the Company arising out of its sale of laminate flooring sourced from China. One insurer also asserted
a claim seeking reformation of one policy to include a ‘‘total pollution exclusion’’ endorsement, contending
that it was omitted from that policy as the result of a mutual mistake.
On April 27, 2015, the Company filed a similar but more comprehensive action against nine of its
general, umbrella and excess insurers (including the five Plaintiffs in the Virginia Action) in the Circuit Court
for Dane County, Wisconsin (where four of the insurers are domiciled) (the ‘‘Wisconsin Action’’). In the
Wisconsin Action, the Company asserted breach of contract claims against its general liability insurers,
alleging that these insurers had wrongfully failed to defend the Company in connection with the
Chinese-manufactured laminate flooring claims. The Company also asserted breach of contract and bad faith
claims against two of its general liability insurers, arising out of the manner in which those insurers computed
retrospective premiums under their policies in connection with the Chinese-manufactured laminate flooring
lawsuits. Finally, the Company sought declaratory relief from the court as to its rights and the insurers’
responsibilities under their policies.
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