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By Michael Greene
April 3 — The United States Court of Appeals for the Second Circuit affirmed the dismissal of a derivative lawsuit alleging that Lululemon Athletica Inc. directors enabled insider trading by the company's former chairman Dennis J. Wilson.
In a per curiam order, the court held that the plaintiff stockholder failed to adequately plead that a pre-suit demand on the board of directors to take remedial action was excused.
Applying Delaware law regarding demand futility, the court found that the plaintiff did not allege with particularity that a majority of the company's board lacked independence or was otherwise incapable of validly exercising its business judgement.
The plaintiff's complaint accused Wilson of selling a large bloc of his stake in the company while the resignation of then-Chief Executive Officer Christine McCormick Day was inside information; the plaintiff further alleged that members of the audit committee had exposed themselves to liability by intentionality facilitating the alleged insider trading.
The court, however, found that the plaintiff's allegations of demand futility “fall short of Delaware's stringent requirements” because the plaintiff could not point to any specific actions or omissions by the audit committee that demonstrated a substantial likelihood of personal liability.
The court also rejected an allegation that demand would be futile because the board is beholden to Wilson and cannot act independently.
“Although this allegation demonstrates that Wilson has an outsize role at Lululemon, it does not justify an inference that the Board is incapable of exercising its independent business judgment,” the court wrote.
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The summary order is available at http://www.bloomberglaw.com/public/document/THOMAS_CANTY_derivatively_on_behalf_of_Lululemon_Athletica_Inc_Pl.
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