Lululemon Ordered to Cough Up WSJ Emails

     (CN) – Lululemon Athletica Inc. must give stockholders email chains with the Wall Street Journal about the legality of the firm’s major trades before its former CEO resigned, the Delaware Chancery Court ruled.
     Hallandale Beach Police Officers and Firefighters’ Personnel Retirement Fund and Laborers’ District Council Construction Industry Pension Fund filed two books and records actions against Lululemon in 2013.
     Dennis Wilson, Lululemon’s founder, entered into a trading plan on Dec. 12, 2012, to sell up to 5.7 million of his shares of common stock for up to 18 months, the complaint states.
     The plan allowed Wilson’s broker at Merrill Lynch to sell 300,000 shares at market price starting Jan. 10, 2013, and up to 1 million shares per month for at least $81.25 per share through June 30, 2014, the plaintiffs claim.
     A particularly important trade occurred on June 7, 2013, the day that Christine Day, Lululemon’s then-CEO, effectively resigned, according to the complaint.
     That day, Wilson’s broker allegedly sold 607,545 shares of his stock – over 200,000 shares more than he had sold on any other day during the first six months of the trading plan.
     Three days later, the per-share price dropped roughly 22 percent, the plaintiffs say.
     The Wall Street Journal then emailed Lululemon to confirm certain facts about Wilson’s apparently well-timed June 2013 trades, according to the complaint.
     Wilson’s “Family Office,” or personal investment firm, ultimately released a statement regarding the trades, but Lululemon did not comment on them, the plaintiffs claim.
     Lululemon moved to dismiss the Hallandale action on Feb. 5, 2014.
     But the Delaware Chancery Court Vice Chancellor Donald Parsons Jr. denied the motion on April 2, finding that there was reason to infer wrongdoing by Wilson and Lululemon.
     Parsons ordered Lululemon to produce the trading plan, any related emails Wilson sent to the company’s compliance office, any changes to the plan, and all files concerning his June 2013 trades or any related inquiry from any board member.
     After Lululemon produced 195 pages and a privilege log of 16 files withheld under the attorney-client privilege, the court consolidated the lawsuits against the firm on June 11, 2014.
     Two days later, the plaintiffs moved to enforce the court’s April 2014 order.
     The court partially denied the motion Thursday, relying on the state Supreme Court’s recent ruling in Wal-Mart Stores Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW.
     Relying on the higher court’s holding that the so-called fiduciary exception to attorney-client privilege applied to books and records actions under Delaware law, Parsons refused to make Lululemon search its non-employee directors’ personal email accounts.
     “An email exchange solely between non-employee directors would not constitute an ‘investigation,’ if that communication never progressed to the further step, for example, of contacting someone at the company, such as an employee responsible for compliance or legal affairs at the company,” Parsons wrote.
     But the plaintiffs have “good cause” to access certain withheld files, the ruling states.
     “The company conceded that the documents sought are identifiable and limited in number; that plaintiffs are substantial stockholders; that plaintiffs have a proper purpose under Garner; and that the communications did not involve trade secrets,” Parsons wrote.
     Lululemon has five business days to produce the Wall Street Journal email chain and two officials’ July 2013 emails about Wilson’s trading compliance, the ruling states.
     Alecia Pulman, Lululemon’s senior vice president and senior director of media relations, told Courthouse News the company would not comment on ongoing legal proceedings.

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