Sheer Yoga Pants Fraud Claims Fall Apart

MANHATTAN (CN) - Lululemon should not face securities fraud claims over its failure to have a live model test yoga tights that proved too sheer on the mat, a federal judge ruled Friday.

In March 2013, sports outfitter Lululemon recalled the popular black Luon fitness pants, made of a 86-percent-nylon and 14-percent-lycra blend manufactured by a Taiwanese textile company.

Although the product once netted 17 percent of the company's sales of women's bottoms and 6 percent of its total sales, Lululemon lost billions pulling it off the shelves amid reports of customer embarrassment in the downward-dog position.

Led by a Louisiana pension fund, shareholders filed a class action lawsuit months later alleging that Lululemon's failure to spot this defect while promoting the quality of the product amounted to securities fraud.

U.S. District Judge Katherine Forrest called that position a stretch, in a 54-page opinion dismissing the lawsuit.

"This narrative requires the court to stretch allegations of, at most, corporate mismanagement into actionable federal securities fraud," Forrest wrote Friday.

"This is not the law," she added.

"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," an accompanying 40-page draft order states. "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."

Lululemon's lawyer declined comment, and the plaintiffs' attorney did not immediately respond to a request for comment.

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