WILMINGTON, Del. (Legal Newsline) - A stockholder’s complaint concerning Lululemon Athletica’s $5 million severance payment to its CEO amid his exit for misconduct was dismissed in the Court of Chancery of the State of Delaware on April 2.
David Shabbouei took issue with Lululemon seemingly ignoring warning signs that the CEO was operating inappropriately and giving him the severance payment instead of just terminating him after what Shabbouei said was his clear delinquency.
Because Lululemon has an exculpatory provision in its certificate of incorporation, Shabbouei had to specifically accuse the company’s board members of breaching their fiduciary duty of loyalty by giving the CEO, Laurent Potdevin, to serve their own concerns or simply bad faith.
”The complaint falls well short of this mark,” wrote Vice Chancellor Joseph R. Slights. “The motion to dismiss must be granted.”
While his brief refuted the argument that the board didn’t “exercise appropriate oversight,” the plaintiff said his true claim is that the board wanted to push forward the separation agreement with the CEO because it gave the board the okay to “sweep its oversight failures under the carpet,” according to the opinion.
The judge pointed to the company’s ethics code and whistleblower hotline, which served as the platform to bring light to the CEO’s conduct, in order to shut down the plaintiff’s argument that the board fell short of having a reliable reporting system.
The complaint also lacks accusations that the board had bad faith when it allegedly overlooked the said behavior.
“Plaintiff cannot use an unpled failure of oversight claims as the background to well plead that the board was somehow interested in the separation agreement,” wrote Judge Slights.
The plaintiff also fails to bring up any suggestion that the CEO could have harbored ill feelings toward the board.
Ultimately, the judge found that the plaintiff’s claim lacked the specific allegations needed to survive dismissal.