Lululemon executives can breathe a sigh of relief now that a federal judge intends to dismiss a lawsuit brought by investors over quality-control issues with its yoga pants.
Some of the investors' legal claims against Lululemon included failing to disclose that its black Luon yoga pants were "too sheer" and "falsely touting its quality control," Reuters reports.
So what can small businesses learn from the Lululemon lawsuit?
The investors claimed that Lululemon misrepresented the quality of its product and covered up an inability to address shortfalls, according to Reuters. The yoga-inspired apparel company lost about $2 billion of its market value after recalling some of its pants when customers discovered that they were see-through.
However, when it comes to misrepresentation claims, both investors and customers can sue a company if:
- They relied on the statement,
- The speaker knew that the listener would rely on the factual correctness of the statement,
- The reliance was justified, and
- The misrepresentation resulted in a monetary loss to the listener.
In the Lululemon case, U.S. District Judge Katherine Forrest issued a draft decision Friday. Forrest said the company's claims about the superior quality of its products were "puffery" and didn't intend to mislead, according to Reuters. Statements that are considered puffery are exaggerated statements made for promotional purposes.
Generally, businesses can't be liable for misrepresentation if the statements amount to mere puffery.
Poor quality control procedures can result in defective products that are rejected by the consumer and can hurt your business' reputation. Plaintiffs in the yoga pants lawsuit against Lululemon claimed that the company dragged its feet in addressing the quality control issue, Reuters said.
Quality control issues can arise at various stages of the manufacturing process. Under products liability law, a product can be defective if there's a defect in design, manufacturing, warning, or marketing. So be sure that your business has a thorough, written procedure for double checking the product before it lands in the consumers' hands.
Because the judge only issued a draft decision, lawyers for either side may still object before a final ruling is issued. The Lululemon lawsuit is being litigated in the U.S. District Court for the Southern District of New York.
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