TORONTO – A U.S. pension fund is suing Lululemon Athletica Inc. (TSX:LLL) over its decision to increase potential bonuses for executives prior to announcing problems with a batch of pants that were too see-through.
The lawsuit, which did not cite the damages sought, was filed Friday at the Court of Chancery in Delaware by the Hallandale Beach Police Officers and Firefighters’ Personnel Retirement Fund.
Lululemon was incorporated in Delaware.
The fund says it wants to examine any corporate books or records to investigate whether the maker of trendy workout gear breached their duties to protect the interests of their shareholders.
It also stated that it will consider “bringing any further action that may be necessary under Delaware law,” following the inspection.
A spokeswoman for the Lululemon, which sells athletic apparel popular with yoga enthusiasts, refused to comment on the case when reached Friday.
But in the eight-page claim, the fund alleged Lululemon has suffered “several quality control issues” this year, with the most recent recall of its black Luon pants estimated to cost the company approximately $60 million.
The allegations have not been proven in court.
Lululemon began pulling the pants off shelves on March 18. The pants represented 17 per cent of the company’s woman’s pants inventory. Since then, it has said that the fabric used in the pants did not meet their standards. Its chief product officer has also left the company.
The court documents allege that about a week before the pants were pulled from story shelves, Lululemon’s board of directors approved to increase the maximum amount allowed for paid bonuses by 33 per cent.
Lawyer Gustavo Bruckner, who is representing the pension fund, would not comment on the lawsuit when contacted in New York.
Shares in Lululemon fell 41 cents or 0.53 per cent, to $76.96 Friday on the Toronto Stock Exchange.
The company operates 211 stores in North America and Australia.