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Lumber Liquidators settles $26M class-action lawsuit

screen-shot-2016-12-16-at-9-13-10-amToano, Va.—Lumber Liquidators has settled a class-action investor lawsuit by issuing 1 million shares of its common stock with a value of $16.8 million, according to a recent regulatory filing. The shares were issued Thursday, Nov. 17. The value was based on a $16.76 per share closing price.
According to the filing, the U.S. District Court in Richmond granted final approval of the proposed settlement. The court also entered a final judgment dismissing all claims in lawsuits involving securities and derivatives.

As part of the securities lawsuit, the company expects to contribute, through its insurers, $26 million in cash to a settlement fund in the fourth quarter, according to the filing.

The derivatives lawsuit will be settled for a combination of corporate governance changes, the $26 million cash payment and attorneys’ fees of $5 million.
Lumber Liquidators has dealt with lawsuits from investors and been investigated by federal agencies since “60 Minutes” ran a segment in March 2015 reporting that the company sold flooring made in China that had unsafe formaldehyde levels, which could increase cancer risks.

The company repeatedly has said the flooring poses no safety issues and it has tested the air quality in more than 32,000 homes.

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Revised CDC report finds elevated LL cancer risk

February 29/March 7, 2016; Volume 30, Number 18

By Ken Ryan

60lumberliquidatorsThe Centers for Disease Control and Prevention (CDC) recently released figures showing that people who purchased Lumber Liquidators laminate imported from China flooring were about three times more likely to get cancer than it had previously calculated.

On Feb. 10 the CDC reported that formaldehyde levels in some selections of Lumber Liquidators’ laminate flooring could cause two to nine cancer cases per 100,000 people. However, two weeks later the agency revised its estimate to six to 30 cancer cases per 100,000 people. (In addition to cancer, people exposed to the laminate flooring products in question are also susceptible to increased risks of exacerbated respiratory issues such as asthma and eye, nose and throat irritation, the CDC said.) The agency admitted it had used an incorrect value for ceiling height, resulting in health risks that were lower than they should have been.

The CDC testing stemmed from a report by “60 Minutes” last March that alleged Lumber Liquidators was selling laminate flooring with levels of formaldehyde that exceeded those allowed in California, which has the strictest standards in the country.

Specialty flooring dealers said their laminate sales have increased since the original Lumber Liquidators report, but some remain skeptical as to whether consumers are paying attention. Others contend the megastore may have damaged the category for everybody.

Eric Langan, owner and CEO of Carpetland USA, with nine locations in Iowa and Illinois, said while the numerous accusations against Lumber Liquidators are severe and serious, “It’s my opinion that the vast majority of the U.S. population is unaware of what that company has done and is doing. I would imagine the mainstream public is generally unaware of the claims, accusations, penalties and fines that Lumber Liquidators have incurred since March. For those consumers who are in the know, I anticipate they would avoid shopping at Lumber Liquidators and look to buy from an alternate source.”

At Carpet Wise Flooring America in Longmont, Colo., which is about 1,000 feet from a Lumber Liquidators’ store, laminate flooring sales have soared since the news first broke. “We have seen a 32% increase in this category, [particularly] in higher end laminate,” said Sam Chesher, owner. “After the ‘60 Minutes’ story and the added competition in hard surface, one would have thought this category would decline. Laminate has been the most surprising category for us by far.”

Nick Freadreacea, president of The Flooring Gallery in Louisville, Ky., said the most recent report has had another immediate impact in that consumers are asking questions about material bought at Lumber Liquidators. “Some of the questions have been, ‘How quickly can you get their material out of our homes and have something else installed?’”

Lumber Liquidators said it supports the CDC’s recommendations and it is “encouraged” that the agency is reviewing its conclusions. The company also repeated that it has strengthened its quality-assurance procedures, suspended sales of Chinese laminate and offered free air tests to customers.


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Lumber Liquidators appoints new COO

102455083-1280px-Lumber_Liquidators_Store_Ypsilanti_Michigan.1910x1000Toano, Va.–Lumber Liquidators, has named Dennis Knowles chief operating officer, effective March 1. He joins the company from Lowe’s.

Knowles will be responsible for the company’s stores organization and related operations and will report directly to CEO John Presley.

Knowles has more than 25 years of leadership experience in store and business operations. He has served in numerous senior management roles across the retail and home improvement industries, most recently as chief store operations officer at Lowe’s Companies, Inc. In this role, Knowles was responsible for overseeing the omnichannel operations of more than 1,700 Lowe’s stores across the country.

Knowles has served in store operations leadership roles at Lowe’s Companies Inc. since 2001, most recently as chief store operations officer, and prior to that as senior vice president of store operations support and specialty sales and its senior vice president of store operations for Lowe’s West and South Central divisions, respectively.

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Revised CDC report shows increased risk from Lumber Liquidators laminates

ct-lumber-liquidators-cancer-risk-20160222Lumber Liquidators lost about a quarter of its market value in early trading Feb. 22 after a report by The Center for Disease Control and Prevention (CDC) showed that people exposed to excessive levels of formaldehyde in some types of laminate flooring sold by the company were three times more likely to get cancer than previously estimated.

The CDC said it now estimated the risk of cancer at six to 30 cases per 100,000 people, compared with the two to nine cases it had previously estimated. The agency said the revised results were preliminary.

In a notice on its website dated Feb. 18, the CDC said it had used an incorrect value to calculate ceiling height in its previous report. The error meant that its estimates of the airborne concentration of formaldehyde—a carcinogen—were about three times lower than they should have been.

Last March, a “60 Minutes” exposé about Lumber Liquidators’ laminate exposed the initial formaldehyde issue. On Feb. 21 the show featured a revised report noting the possibility of an error on the part of CDC scientists in their initial findings.

“We sent the report to scientists at several universities and discovered the government forgot to convert feet to meters in some calculations,” said Anderson Cooper, “60 Minutes” correspondent.

In an emailed statement following the updated report, Lumber Liquidators said it had significantly strengthened its quality controls: “We are encouraged that CDC is seeking a broader review of their conclusions.”

Lumber Liquidators’ shares were down 24.3% shortly after the start of trading Feb. 21, its biggest intraday percentage loss in six months. The company’s sales and shares have taken a significant hit since the initial “60 Minutes” report last March.

The company has suspended sales of all laminate flooring imported from China.


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Lumber Liquidators to pay $13.2M for environmental crimes

CompanyLogos_Lumber-Liquidators-logoToano, Va.–Lumber Liquidators will pay $13.2 million for illegally importing hardwood flooring, after the company pleaded guilty to environmental crimes last year.

The Department of Justice said that Lumber Liquidators made hardwood floors in China from illegally cut Mongolian oak trees in Russia. Those trees are needed to protect endangered Siberian tigers and Amur leopards because their prey eats the acorns from them, the Justice Department said.

Lumber Liquidators, which was sentenced Feb. 1 in federal court, will pay $7.8 million in criminal fines, more than $1.2 million in community service payments and nearly $970,000 in criminal forfeiture. It will also pay about $3.2 million through a related civil forfeiture. The company also agreed to a five-year probation period.

The Department of Justice said that the penalty is the biggest for timber trafficking under the Lacey Act.

Lumber Liquidators said in a statement Feb. 1 that it is “pleased to put this legacy issue behind us.”

The company pleaded guilty to environmental crimes in October. Its plea agreement was unrelated to the controversy over some of its laminate flooring from China, which the CBS TV news show “60 Minutes” had reported contains high levels of the carcinogen formaldehyde.

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Lumber Liquidators pleads guilty to environmental crimes

Screen Shot 2015-10-26 at 4.43.30 PMToano, Va.—Lumber Liquidators pleaded guilty to environmental crimes related to importing flooring manufactured in China from timber illegally logged in Eastern Russia, the habitat for the world’s last remaining Siberian tigers and Amur leopards.

The company entered a plea agreement to one felony and four misdemeanors in U.S. District Court. As part of the agreement, the company agreed to pay $13.2 million to end a federal investigation. The Department of Justice said the financial penalty is the largest ever imposed for illegal timber trafficking.

Sentencing is set for Feb. 1.

According to a report filed with the plea agreement, Lumber Liquidators should have known the flooring manufactured in China was made from illegally sourced Mongolian oak. However, the company failed to heed “red flags” as required by its own internal procedures.

“Lumber Liquidators’ race to profit resulted in the plundering of forests and wildlife habitat that, if continued, could spell the end of the Siberian tiger,” said John C. Cruden, assistant attorney general, in a written statement.

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Lumber Liquidators settles with DOJ for Lacey violation

Screen Shot 2015-10-08 at 2.33.43 PMToano, Va.—Lumber Liquidators will pay $10 million to settle criminal charges with the Department of Justice for its violation of the Lacey Act.

The company will pay a $7.8 million fine, an $880,825 community service payment and $350,000 to the National Fish and Wildlife Foundation and the Rhinoceros and Tiger Conservation Fund. Lumber Liquidators will also forfeit $969,175, though it hasn’t specified who will receive the forfeiture payment.

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Five-state lawsuit filed against Lumber Liquidators

Screen Shot 2015-09-21 at 1.54.02 PMToano, Va.—Charging Lumber Liquidators with fraudulently selling composite flooring that contains excessive and unlawful levels of formaldehyde, purchasers filed a representative complaint in federal court on behalf of classes of consumers in five states: California, Florida, Illinois, New York and Texas.

The complaint, filed in the U.S. District Court for the Eastern District of Virginia on Sept. 11, alleges that Lumber Liquidators sold Chinese-manufactured flooring that contained high levels of formaldehyde without disclosing that to purchasers. Instead, Lumber Liquidators falsely labeled their products as meeting or exceeding California Air Resources Board (CARB) formaldehyde emissions standards. This composite laminate flooring was sold nationwide under the brand name Lumber Liquidators Dream Home.

“These consumers believed that the flooring they purchased and installed in their homes, including in their children’s bedrooms, met product safety standards,” said Steven J. Toll, an attorney for Cohen Milstein Sellers & Toll PLLC, which is representing the plaintiffs. “But independent testing found that the flooring was emitting levels of formaldehyde gas that exceeded emissions regulations.”

Formaldehyde, a common ingredient in the glue used in the base layer of composite laminate flooring, is often used to reduce manufacturing costs of that bottom layer. Exposure to formaldehyde for periods as brief as 15 minutes has been known to cause respiratory irritation, headaches, coughing, dizziness, nausea and other symptoms. Chronic and long-term exposure to formaldehyde is linked to increased risk of various forms of cancer, including lung cancer and leukemia, and can aggravate asthma in formaldehyde-sensitive individuals.

The lawsuit charges that from October 2013 through November 2014 three accredited laboratories tested the formaldehyde emissions of laminate wood flooring from several nationwide retail outlets, including Home Depot, Lowe’s and Lumber Liquidators. Using testing methods consistent with CARB regulations and with CARB-recommended standard operating procedures, the laboratories found laminate flooring made in China and sold by Lumber Liquidators contained by far the highest levels of formaldehyde—on average, 23 times higher than U.S.-manufactured products. The levels were several times the maximum CARB limits and exceeded the standards set by the federal Toxic Substances Control Act.

The complaint will serve as a bellwether for the 134 cases sent to the U.S. District Court, Eastern District of Virginia, as part of Multi-District Litigation (MDL) against Lumber Liquidators. Plaintiffs seek restitution of money they spent on Lumber Liquidators flooring products plus damages.

This is the latest in a series of legal matters affecting Lumber Liquidators.

In May, Lumber Liquidators announced it was halting sales of all of its Chinese-made laminate flooring effective immediately. The move came amid dozens of lawsuits over the safety of the products, as well as looming criminal charges disclosed by the company concerning its foreign sourcing.

Last month, Lumber Liquidators disclosed in a regulatory filing that CARB found in preliminary testing that the laminate flooring it obtained in March contained levels of formaldehyde that exceeded the required limit.

The retailer is also facing criminal charges related to the import of certain wood products under the Lacey Act, which bans illegally sourced wood products. In 2013, federal agents raided the offices of Lumber Liquidators, investigating allegations that the company knowingly imported wood products illegally harvested in the Russian Far East.

That same year, the Environmental Investigation Agency released a report that detailed the extent and nature of illegal logging in the Russian Far East. It found that since the 2008 Lacey Act amendments became law, Lumber Liquidators has imported millions of square feet of solid oak flooring from a manufacturer that freely describes its own illegal logging practices and buys wood from suppliers that are under scrutiny by Russian authorities for illegal logging in the world’s most threatened temperate forest.

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Lumber Liquidators fires chief merchandising officer

CompanyLogos_Lumber-Liquidators-logoToano, Va.–Lumber Liquidators said it has fired William Schlegel, who served as chief merchandising officer after serving more than four years in the position.

Schlegel’s last day will be June 19. Marco Pescara, who will hold the dual roles of chief marketing officer and chief merchandising office, will replace him. Pescara has been with the company for nine years.

Lumber Liquidators did not say why it was firing Schlegel, who is the latest in a string of executives to depart the company. In recent weeks, Ray Cotton, the chief compliance officer, Robert Lynch, the CEO, and Daniel Terrell, the CFO, left the company.

In May, Lumber Liquidators said that it had suspended the sale of all laminate flooring made in China after disclosing that the Justice Department is seeking criminal charges against it. The news show “60 Minutes” reported in March that the Chinese-made laminate flooring contained high levels of the carcinogen formaldehyde.

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Lumber Liquidators loses third member of executive team

AAEAAQAAAAAAAAJLAAAAJGE0ZGU1YmYxLTgzMzktNDA3NS1hZjk0LTkwMzE4YTY1YTM2YgToano, Va.—Lumber Liquidators has lost another member of its top management team, according to the New York Post. Ray Cotton, chief compliance officer, has left the company.

Cotton’s departure follows those of CEO Robert Lynch and CFO Daniel Terrell and was confirmed to the New York Post by Lumber Liquidators after Cotton posted the news on his personal LinkedIn page.

Further information will follow in the June 8/15 issue of FCNews.