Lumber Liquidators 2015 Annual Report Download - page 87

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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)
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 the
Company’s directors at that time, as well as its 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’’). The Company was 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 the
Company, (2) a determination and award to the Company of the damages sustained by the Company as a
result of the violations of each of the Individual Defendants, jointly and severally, (3) a directive to the
Company and the Individual Defendants to take all necessary actions to reform and improve the Company’s
corporate governance and internal procedures to comply with applicable laws and to protect the Company and
its shareholders from a repeat of the events that led to the filing of this action, (4) a determination and award
to the Company 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 the Company from the Individual Defendants, (6) a requirement that the Company establish
corporate policies and procedures prohibiting the use of Chinese manufacturers of its products, (7) a
prohibition against the Company using wood or wood products from the Russian Far East, (8) a requirement
that the Company establish corporate policies and procedures to ensure compliance with CARB standards for
all of its flooring products, and (9) disgorgement and payment to the Company of all compensation and profits
made by the Individual Defendants, and each of them, at any time during which such Individual Defendants
were breaching fiduciary duties owed to the Company and/or committing, or aiding and abetting the
commitment of, corporate waste.
Additionally, in May 2015, the Company 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, the Company filed a motion to dismiss based on the failure to make a
demand upon the Company’s 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, the Company cannot estimate the reasonably
possible loss or range of loss that may result from this action.
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