Monday, August 18, 2014
OK. So, I am stretching a bit here. But yoga may be considered a sport, athletic clothing is a kind of fashion, and securities fraud prohibitions and corporate director fiduciary duty involve law. So, I stand by my blog title in the face of any criticism that may follow this post.
I do yoga four times a week when I am not traveling. I also work out, sometimes on days when I am not doing yoga. So, I have a fair number of pieces of yoga wear and other athletic clothing. This means that I get regular mail and email solicitations from the firms that purvey these clothing items.
I recently received a catalog from one of my favorite athletic clothing brands, Sweaty Betty, which I discovered originally when I was teaching in Cambridge, England in one of our study abroad programs a few years ago. I noticed, with some amusement, that the new catalog harps on the opacity of the firm's yoga bottoms or trousers (as the British like to call them). The website does the same--"100% opaque" labels abound. As an astute consumer and securities lawyer, I immediately jumped to the conclusion, whether right or wrong, that this yoga-bottoms advertising campaign is a reaction to the see-through yoga pants debacle of one of Sweaty Betty's competitors, Lululemon (another of my favorite brands).
What does business law have to do with this (apart from the many standard legal angles on the recall of products generally)? As my securities regulation students from last spring well know (since it was the subject of part of their final exam), stockholders of Lululemon brought a securities fraud class action suit against Lululemon, after the recall of the see-through pants, based on alleged misrepresentations of material fact in public disclosures touting the high quality of its yoga pants. Predictably (at least imho), the District Court dismissed the action back in April. The court's opinion and order resulted in a few interesting online law firm commentaries with colorful titles (including posts from, e.g., Orrick and Weil). The public fallout also includes (as most would guess) allegations of breaches of fiduciary duty and observations about insider trading and Rule 10b5-1 plans because of some well-timed trades by Lululemon's founder and then-CEO.
As we think about the new semester (ours starts on Wednesday), the Sweaty Betty catalog reminded me to bring the Lululemon matter to the attention of our law faculty readers. The facts and public reactions make for a nice case study of risk management in the context of securities regulation and fiduciary duty law. A Stanford "Closer Look" piece, as well as many news reports, make the use of the case reasonably easy. And for those of you who want to take a peak at my exam question, just ask . . . .