Delaware Chancery Court Dismisses Derivative Action Against lululemon Board and Founder

The Delaware Court of Chancery dismissed in its entirety a derivative complaint filed against the board of directors of lululemon athletica, including Paul, Weiss client Dennis "Chip" Wilson, lululemon's founder and former chairman of its board.

The derivative complaint alleged, among other things, that Mr. Wilson sold a significant amount of his lululemon stock on June 7, 2013, the same day that former CEO Christine McCormick Day informed the board of her resignation, but three days before the company publicly announced Ms. Day's resignation. The plaintiffs alleged that the board could not impartially consider a demand because the directors breached their fiduciary duties by failing to investigate Mr. Wilson's purportedly suspicious trading activity. They also asserted a claim against Mr. Wilson for allegedly breaching his fiduciary duties by using material, non-public information to influence certain stock sales for his personal financial gain.

In a 40 page memorandum opinion, the court held that the derivative claims were barred under principles of issue and claim preclusion based on the 2013 dismissal of a derivative suit involving substantially similar allegations brought in the Southern District of New York. Applying New York state law, the Chancery Court found that principles of issue preclusion barred the plaintiffs' claims because the New York court considered and decided the same theory of demand futility. The Chancery Court also held that the plaintiffs' derivative claims were barred by claim preclusion because they could have been raised in the prior New York action.  

The Paul, Weiss team included litigation partners Stephen Lamb, Michele Hirshman and Audra Soloway, who argued in the Chancery Court on behalf of Mr. Wilson, and associates Daniel Mason and Brette Tannenbaum. Paul, Weiss also successfully defended Mr. Wilson against securities fraud and derivative suits filed in the Southern District of New York, and in the appeals from the dismissal of those actions in the Second Circuit.