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Item 3. Legal Proceedings

2024-03-01 compared with 2023-02-28 · 27 added, 41 removed, 26 unchanged (72% of the section changed)

Legal Proceedings.

We are from time to time subject to, and are presently involved in, litigation and other legal proceedings and from time to time, we receive inquiries from government agencies.

See “Note 11—Commitments and Contingencies” in the notes to the audited financial statements.

From time to time, the Company is subject to, and is presently involved in, litigation and other legal proceedings and from time to time, the Company receives inquiries from government agencies.

Accounting for contingencies requires the Company to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss.

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Company records a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

The Company discloses material contingencies when a loss is not probable but reasonably possible.

On November 14, 2018, Chanel, Inc.

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On May 29, 2020, the Company filed its Answer to the Amended Complaint.

On October 30, 2020, the Company sought leave to amend its Answer to assert counterclaims against Chanel, Inc.

On November 3, 2020, the Company sought leave to amend its Answer to assert counterclaims against Chanel, Inc.

for violations of the Sherman Act, 15 U.S.C.

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The motion for leave to amend was granted on February 24, 2021.

moved to dismiss the Company’s counterclaims;

the motion to dismiss remains pending.

On February 25, 2021, the Company filed its First Amended Answer, Affirmative Defenses and Counterclaims against Chanel.

The Company’s Counterclaims allege violations of the Sherman Act, 15 U.S.C.

§§ 1 & 2, the Donnelly Act, N.Y.

§ 340, and New York common law.

On March 18, 2021, Chanel moved to dismiss the Company’s Counterclaims and moved to strike the Company’s unclean hands affirmative defense.

Decisions on Chanel’s motion to dismiss and motion strike are pending.

The parties agreed to a stay in April 2021 to engage in settlement discussions.

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Chanel then sought a partial stay of discovery on the Company's counterclaims and unclean hands defense while Chanel's motion to dismiss and strike those claims are pending, and on March 10, 2022, the Court granted Chanel's request.

The parties continue to engage in fact discovery regarding Chanel's counterfeiting and false advertising claims against the Company.

Fact discovery is currently scheduled to be completed by August 15, 2023, and all depositions of fact witnesses will be completed by no later than July 15, 2023.

The parties have continued to engage in fact discovery regarding Chanel's counterfeiting and false advertising claims against the Company.

Fact discovery was scheduled to be completed by August 15, 2023.

However, on July 19, 2023, the Court ordered a stay of the case at the parties’ request to enable the parties to attempt mediation again.

The parties are working to schedule mediation in the first half of 2024.

The final outcome of this litigation, including our liability, if any, with respect to Chanel’s claims, is uncertain.

An unfavorable outcome in this or similar litigation could adversely affect our business and could lead to other similar lawsuits.

On September 10, 2019, a purported shareholder class action complaint was filed against the Company, its officers and directors and the underwriters of its IPO in the Superior Court of the State of California in the County of San Mateo.

Three additional purported class actions, also alleging claims arising from the IPO were subsequently filed in Marin County and San Francisco County Superior Courts.

The San Mateo case was voluntarily dismissed, refiled in Marin County Superior Court and consolidated with the cases there.

On January 10, 2020, the Marin County plaintiffs filed a consolidated amended complaint.

The plaintiffs in the San Francisco Superior Court case have filed a request for dismissal.

Separately an additional purported class action was filed in the United States District Court for the Northern District of California on November 25, 2019.

On February 12, 2020, a lead plaintiff was appointed in the federal action and an Amended Consolidated Complaint was filed on March 31, 2020.

Defendants filed a demurrer and motion to strike in the state court action on March 13, 2020 and filed a motion to stay the proceedings in favor of the federal action on May 1, 2020.

On August 4, 2020, the court granted defendants’ motion to stay the state court action and deferred ruling on the demurrer and motion to strike pending the outcome of the federal court action.

A motion to dismiss the federal court action was filed on May 15, 2020.

On March 31, 2021, the court entered an order on the motion to dismiss, dismissing the Exchange Act claims and some of the claims alleged under the Securities Act.

The court provided plaintiffs with an opportunity to amend the complaint and, on April 30, 2021, plaintiffs filed a Second Amended Complaint in federal court.

The state court complaint, and the Second Amended Complaint in federal court each allege claims under the Securities Act of 1933 on behalf of a purported class of shareholders who acquired the Company’s stock pursuant to or traceable to the registration statement for the Company’s IPO.

The federal complaint also alleges claims under the Exchange Act on behalf of a purported class of shareholders who purchased the Company’s stock from June 27, 2019 through November 20, 2019.

The complaints seek, among other things, damages and interest, rescission, and attorneys’ fees and costs.

On July 27, 2021, the Company reached an agreement in principle to settle this shareholder class action.

An unfavorable outcome in this or similar litigation could adversely affect the Company’s business and could lead to other similar lawsuits.

The Company is not able to predict or reasonably estimate the ultimate outcome or possible losses relating to this claim.

Beginning on September 10, 2019, purported shareholder class action complaints were filed against the Company, its officers and directors and the underwriters of its IPO in the San Mateo Superior Court, Marin County Superior Court, and the United States District Court for the Northern District of California.

On July 27, 2021, the Company reached an agreement in principle to settle the shareholder class action.

On November 5, 2021, plaintiff filed the executed stipulation of settlement and motion for preliminary approval of the settlement with the federal court.

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The Company paid the settlement amount on March 29, 2022 with available resources and recorded approximately $11.0 million for the year ended December 31, 2021 under our Operating expenses as a Legal settlement.

One of the plaintiffs in the state court action opted out of the settlement.

The stay of the state court case has been lifted, and the opt out plaintiff filed an amended complaint on October 31, 2022 alleging putative class claims under the Securities Act on behalf of the two shareholders who opted out of the settlement and those who purchased stock from November 21, 2019 through March 9, 2020.

On December 22, 2022, the Company filed a motion to dismiss and a motion to strike class allegations.

On September 10, 2020 and December 7, 2020, purported shareholders filed putative derivative actions in the United States District Court for the District of Delaware.

The derivative complaints allege factual allegations largely tracking the above referenced purported shareholder class actions.

The two derivative cases have been consolidated.

On September 13, 2021, the parties reached a settlement in principle of the derivative case.

The settlement in principle provides for certain corporate governance reforms in exchange for a release and dismissal of the lawsuit.

On October 21, 2021, the parties reached agreement to pay up to $0.5 million in attorneys’ fees and costs to plaintiffs’ counsel in the derivative case.

On November 5, 2021, the parties entered into a stipulation of settlement, and, on February 11, 2022, the court entered an order and final judgment approving the settlement.

In connection with the derivative settlement, the Company recorded approximately $0.5 million for the year ended December 31, 2021 under our Operating expenses as a Legal settlement.

The stipulation of settlement was preliminarily approved on December 8, 2021, and the $0.5 million was paid within thirty (30) days of the preliminary approval, or on January 7, 2022, with available resources .

We are currently involved in, and may in the future be involved in, legal proceedings in the ordinary course of business.

While it is not possible to determine the outcome of any legal proceedings brought against us, we believe that, except for the matters described above, the resolution of all such matters will not have a material adverse effect on our financial position or liquidity, but could be material to our results of operations in any one accounting period.

Regardless of final outcomes, however, any such legal proceedings may nonetheless impose a significant burden on management and employees and may come with costly defense costs or unfavorable preliminary and interim rulings.

There are inherent uncertainties in these legal matters, some of which are beyond management’s control, making the ultimate outcomes difficult to predict.

Moreover, management’s views and estimates related to these matters may change in the future, as new events and circumstances arise and as the matters continue to develop.

One of the plaintiffs in the Marin County case opted out of the federal settlement and is pursuing the claim in Marin County Superior Court.

The stay of the state court case has been lifted, and the opt out plaintiff filed an amended complaint on October 31, 2022 alleging putative class claims under the Securities Act of 1933 (the “Securities Act”) on behalf of the two shareholders who opted out of the settlement and those who purchased stock from November 21, 2019 through March 9, 2020, based on purported new revelations.

The claims are for alleged violations of Sections 11 and 15 of the Securities Act.

On February 23, 2024, plaintiff filed a motion for class certification, which has been set for hearing on May 28, 2024.

While the Company intends to defend vigorously against this litigation, there can be no assurance that the Company will be successful in its defense.

For this reason, the Company cannot currently estimate the loss or range of possible losses it may experience in connection with this litigation.

Mine Safety Disclosures.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings