Shareholder Lawsuits Pile Up Against Lumber Liquidators

July 17, 2015 — A slew of shareholder lawsuits have been filed against Lumber Liquidators, the retailer of formaldehyde-laden laminate flooring whose stock has dropped from $117 to under $20.

According to the National Law Journal, shareholders filed a consolidated derivative complaint on June 26 on behalf of Lumber Liquidators against its board and five officers.

The stock price plummeted in response to a “60 Minutes” report on March 1. Investigators accused Lumber Liquidators of boosting profits by selling Chinese-made laminate wood flooring that contained toxic levels of formaldehyde, and then mislabeling the flooring as compliant with federal and state laws limiting emissions.

Since then, three top executives have abruptly resigned or been fired. Chief financial officer Daniel Terrell resigned in April, chief executive officer Robert Lynch “unexpectedly” quit in May, and head of merchandising William Shlegel was fired in June.

John Coffee, a professor at Columbia Law School told The National Law Journal:

“If they’re getting fired because they knew the company was importing noncompliant products—products that didn’t comply with California law—that would be a case in which you can say ‘Gee, that shows it was negligent.’ The case against those fired officers would be somewhat stronger.”

Chairman Tom Sullivan and CEO Robert Lynch have also been sued for insider trading in Delaware Chancery Court, according to Bloomberg.

Another 100 consumer class action lawsuits have been centralized in one federal court in Virginia (MDL No. 2627) since June, all accusing Lumber Liquidators of selling flooring that emits illegal and unsafe levels of formaldehyde, a known carcinogen.