Two Class Action Lawsuits Filed Against Lumber Liquidators for Wood Formaldehyde, Lacey Act Violations
Two class-action lawsuits have been filed against Lumber Liquidators in Eastern Virginia U.S. District Court seeking damages related to alleged Lacey Act and wood formaldehyde standard violations. Investor Gregg Kiken filed a securities fraud lawsuit against the company Nov. 27. About one week later, three law firms filed a class action suit on behalf of consumers who purchased wood flooring from Lumber Liquidators. Both suits are related to allegations that Lumber Liquidators sourced illegally logged Siberian wood from China, and that the wood had elevated levels of formaldehyde emissions despite being marked as compliant with California Air Resources Board regulations.
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According to both lawsuits, Chinese wood flooring imported and sold by Lumber Liquidators has excessive levels of carcinogenic formaldehyde emissions. Kiken cites an article published June 20 on SeekingAlpha.com (here) that said independent laboratories tested wood flooring sold by Lumber Liquidators and found that formaldehyde emissions were over 3.5 times the maximum legal limit, despite the fact that the product was labeled as compliant with CARB formaldehyde limits. SeekingAlpha is a widely read stock market analysis website that sources articles from independent contributors -- in this case an investor who was at the time short in lumber liquidators stock.
Both lawsuits also cite an October study by private advocacy group Environmental Investigation Agency (here) that found one of Lumber Liquidators’ biggest Chinese suppliers illegally logged lumber in the Russian Far East, processing the lumber in China before selling it to Lumber Liquidators. The allegations were the subject of a Sept. 27 raid by Immigration and Customs Enforcement and the Fish and Wildlife Service, which allegedly found evidence of the illegally logged products at two Lumber Liquidators facilities in Virginia (see 13092716). The government has not made public any charges filed against Lumber Liquidators related to the raids.
The securities lawsuit says despite the fact that corporate officers should have known about the violations, they nonetheless represented that Lumber Liquidators complied with Lacey Act and formaldehyde regulations, which artificially inflated the stock price of the company and caused investors to lose out in the end. In particular, they repeatedly return to a statement in several company reports to the Securities and Exchange Commission where lumber liquidators said “certain of our products are subject to laws and regulations relating to the importation, acquisition or sale of illegally harvested plants and plant products and the emissions of hazardous materials. We work closely with our suppliers to ensure compliance with the applicable laws and regulations in these areas."
The securities suit also points to a statement from a hedge fund manager that said Lumber Liquidators was only able to maintain its “unbelievably high margins” as a result of importing illegal timber. The lawsuit seeks damages from Lumber Liquidators, its President and CEO Robert Lynch, CFO Terrell, and Chairman of the Board and Founder Thomas Sullivan.
Meanwhile, the class action suit filed on behalf of consumers that purchased Lumber Liquidators’ products claims Racketeering Influenced and Corrupt Organizations (RICO) Act violations related to allegations that the company conspired with Chinese suppliers and third-party certifiers to defraud consumers and violate the Lacey Act It also said Lumber Liquidators violated federal warranty laws and unjustly enriched itself at consumers’ expense.
“Lumber Liquidators’ egregious misconduct was a breach of their express and implied warranties and has caused significant harm to purchasers of the company’s Chinese-sourced wood flooring products,” said plaintiffs’ attorney Jason Leviton of Block & Leviton, in a statement released Dec. 4 (here). “Quite simply, consumers would not have purchased, or would have paid substantially less for, products that contain toxic levels of formaldehyde or that were sourced illegally from critical habitats, both of which were done in violation of federal and state laws,” he said. “We will do everything in our power to make sure this conduct ceases and that the consumers are adequately compensated for damages they sustained resulting from Lumber Liquidators’ improper conduct,” said Leviton. Lumber Liquidators did not respond to a request for comment.
Email ITTNews@warren-news.com for a copy of the complaints.