NEW YORK, N.Y. – Lululemon Athletica Inc. appeared poised to defeat a class action lawsuit filed against the company over a recall of its black Luon pants last year because they were too sheer.
U.S. Judge Katherine Forrest released a draft decision Friday that proposes the case be dismissed.
The lawsuit by shareholders accused the Vancouver-based athletic-wear company of failing to disclose the quality defects in its Luon yoga pants, which resulted partly due to cost cutting.
It also accused the company of making misleading statements and omissions that caused its stock price to become artificially inflated.
However, the draft decision by Forrest says many of the statements were “simple puffery” by the company and that no reasonable investor would base decisions on them.
“Statements too general to support a reasonable investor’s reliance are not actionable,” Forrest wrote in the draft.
She also agreed with Lululemon that some excerpts cited by the plaintiffs in the case as false were taken out of context, including a statement on the company’s website that the quality of its products are the “highest in the industry.”
“In context, it is unreasonable to read the website statement regarding ‘highest in the industry’ as a guarantee of no product defects,” Forrest wrote of one example.
Lululemon took a beating in the wake of the recall last year and the sudden departures of both chief product officer Sheree Waterson and chief executive Christine Day.
Shares in the company fell more than 15 per cent after Day announced that she was leaving the yoga wear maker in June 2013.
Lululemon blamed the sheerness of their pants on a style change and production problems. It later hired a new team to oversee the manufacturing of the pants.
In court documents, Forrest also proposed dismissing a second lawsuit against 13 current or former Lululemon directors or executives for breaking securities laws.
In that case, the executives and directors including Day and chairman Chip Wilson are accused of breach of their fiduciary duty and gross mismanagement.
Forrest is expected to hold a hearing to review the proposed decisions before making them final.
Lululemon (Nasdaq:LULU) shares were up 12 cents at US$54.26 in trading on the Nasdaq market on Friday afternoon.