“Ka-ching, ka-ching” goes Lumber Liquidators’ cash register

Beset by class action law suits and regulatory inquiries that had driven its stock price into the basement and led to the departure of key executives, Lumber Liquidators agreed last week to pay US$2.5million to the California Air Resources Board (CARB) in order to ‘resolve’ their inquiry into the sale of laminate flooring sourced from China. Tests by independent third parties had revealed that, contrary to labelling, the formaldehyde content of certain laminate flooring styles violated allowable limits. However, the company claims that the payment to CARB is not linked to any finding of wrong-doing.

In fact, a recent review of the Centers for Disease Control (CDC) initial findings uncovered the embarrassing news that the flooring’s formaldehyde content was approximately three times what was first feared, due a metres-to-feet conversion oversight. The CDC investigation is on-going. Formaldehyde is a known carcinogen linked to cancer and respiratory issues.

Unlike the recent payment to CARB, the US$10 million DOJ payment was for a violation of a major U.S. conservation act.

The second multi-million dollar settlement paid
This is the second multi-million payment made by Lumber Liquidators since the formaldehyde controversy was uncovered by the CBS news show 60 Minutes. That show, and the fury resulting from coast-to-coast, forced the company to pull the product from their shelves in May 2015 both in Canada and in the United States.

In October 2015, Lumber Liquidators agreed to pay the Department of Justice US$10 million and plead guilty to a violation of the Lacey Act, a conservation law regarding the protection of plants, fish and wildlife, and for making false import declarations about the origin of the timber used in its hardwood flooring. The $10 million payment included a $7.8 million fine, an $880,825 community service payment and a $350,000 payment to the National Fish and Wildlife Foundation and the Rhinoceros and Tiger Conservation Fund. Lumber Liquidators also forfeited another $969,175, although it was not revealed at the time who received the forfeiture payment.

Lumber Liquidators hopes to re-build brand confidence
In addition to the payments, Lumber Liquidators has agreed to initiate a protocol of stringent testing and safe practices to ensure product safety in the future. “Consumer safety is our top priority and, over the past year, we have implemented a number of customer-focused initiatives” said John Presley, Chief Executive Officer in a statement. “We strengthened our quality assurance procedures, launched the largest voluntary testing program in our nation’s history…. We believe today’s settlement will go a long way in helping us to execute our strategy, which includes rebuilding our brand and communicating – with clarity and candor – the value of our products to our customers and stakeholders.”

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