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Second Circuit Affirms Dismissal of Derivative Action Against lululemon Board and Founder
- Client News
- April 3, 2015
Practices
The Second Circuit affirmed the order dismissing a shareholder
derivative action brought against the board of directors of
lululemon athletica, including Paul, Weiss client Dennis "Chip"
Wilson, lululemon founder and former chairman of the board of
directors.
The 2013 lawsuit alleged, among other things, that Mr. Wilson sold
a large portion of his lululemon stock on June 7, 2013, the same
day that former CEO Christine McCormick Day informed the board of
her resignation. The plaintiff alleged that the board could not
impartially consider a demand because it had facilitated or failed
to prevent Mr. Wilson's purported insider trading by delaying a
public announcement of Day's resignation until the following
Monday, June 10, 2013. In a summary order issued just one week
after oral argument, the Second Circuit found that the plaintiff's
allegations "fall short" of Delaware's stringent requirements for
alleging demand futility. The Second Circuit rejected the
allegation that certain directors faced liability for facilitating
Mr. Wilson's stock sales because of their positions on the audit
committee, observing that the plaintiff failed to "allege any
specific actions or omissions" by those directors that give rise to
a "reasonable inference" that they could not impartially consider a
demand. It also rejected the plaintiff's allegation that
lululemon's board was beholden to Mr. Wilson due to his influence
at the company and significant stock ownership. Even assuming Mr.
Wilson's "outsize" role at lululemon during his tenure there, the
Second Circuit found that mere allegations of his ability to exert
influence did "not justify an inference that the Board is incapable
of exercising its independent business judgment."
The Paul, Weiss team included litigation partners Michele
Hirshman and Audra Soloway.