May 3 Lululemon Athletica Inc was sued by a pension fund shareholder on Friday that wants to know if the board of directors wasted corporate assets by increasing potential bonuses for executives on the eve of a recall of yogawear that could cost the company millions of dollars.
The company, known for its trendy yoga wear, said in March that it would pull workout pants from store shelves because they could be see-through, a move that could dent its bottom line by up to $40 million.
Less than a week before the revelations about the defective clothing, the company's compensation committee approved changes to Lululemon's executive bonus plan, according to the lawsuit.
The changes increased by a third the potential bonus for executives who reached their performance goals, according to the lawsuit by the Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund.
Lululemon did not immediately respond to a request for comment.
The lawsuit was filed in the Court of Chancery in Delaware, where Vancouver-based Lululemon is incorporated.
The recall generated a flurry of embarrassing, pun-filled headlines and sent the company's stock price down more than 6 percent. Since then, however, the shares have gained about 25 percent to trade above where they were before the recall. The shares were trading at C$77.39 on Friday afternoon on the Toronto Stock Exchange, little changed.
Plaintiffs often use such "books and records" lawsuits to investigate alleged wrongdoing. The requests for information can lead to an additional lawsuit that seeks to hold a board responsible for a particular harm to the company.
The Florida pension fund said in the lawsuit that it sent a request for the information to the board because it wanted to determine if directors and officers were potentially guilty of corporate waste and mismanagement for the larger potential bonuses.
The company did not respond to the request for the information, prompting the lawsuit, according to the complaint.
An attorney for the pension fund, Gustavo Bruckner of the Pomerantz Grossman Hufford Dahlstrom & Gross, declined to comment.