Securities Law

Suit over Lululemon's sheer yoga pants should be dismissed, federal judge says in draft decision

A federal judge in Manhattan has released a draft decision that recommends dismissal of a shareholder suit against Lululemon for allegedly making false statements about the quality of its yoga pants.

U.S. District Judge Katherine Forrest of Manhattan released the draft decision on Friday, Reuters reports. She tentatively ruled against shareholders who sued after Lululemon recalled its yoga pants in March 2013, resulting in a loss of about $2 billion in market value. The recall came after customers complained the fabric was too sheer and the colors bled.

Forrest said shareholders were essentially arguing that Lululemon would have discovered its yoga pants were defective if the garments had been tested properly, according to the Reuters account.

“We are not yet at a point when an apparel company’s failure to employ testing by live models renders statements touting high quality false and misleading,” she wrote. “It is only reasonable to assume that if Lululemon secretly knew that the (alleged) fix for its quality issues was simply to employ more people to wear its yoga pants and exercise, it would have done so—rather than the alternative of losing $2 billion in market capitalization.”

Forrest is expected to decide whether to make the decision final after holding a court hearing. She also recommended dismissal of two related suits against Lululemon executives.

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