From Bad to Worse for Lumber Liquidators Toxic Flooring

Washington, DCFor Lumber Liquidators’s allegedly toxic flooring, it just goes from bad to worse. Already facing over 100 Lumber Liquidators formaldehyde lawsuits from disgruntled plaintiffs upset with allegedly unsafe engineered flooring imported from China, the company has revealed it could be facing criminal charges from the US Department of Justice (DOJ) over the company’s alleged use of illegally logged wood.

This latest revelation was contained in a quarterly filing with the US Securities and Exchange Commission (SEC). While most are well aware of the formaldehyde issue with Lumber Liquidators composite flooring through a recent 60 Minutes (CBC) investigation, few would know about a raid conducted by federal authorities in September 2013 amidst news reports over imported wood products linked to protected forests in the Russian Far East. The latter is home to the endangered Siberian tiger and the Far East leopard.

According to Lumber Liquidators’s filing with the SEC, the Department of Justice has signaled it will seek criminal charges under the Lacey Act, a conservation law that prohibits the import of products from illegally logged woods. In its filing, Lumber Liquidators said it has set aside $10 million for any anticipated losses, fines or penalties associated with the pending charges.

The more pervasive issue, however, has to do with composite flooring imported by Lumber Liquidators from China. There have been reports and allegations of high levels of formaldehyde in the composite flooring. A 60 Minutes investigation revealed comments from a principal in the manufacturing facility in China where the Lumber Liquidators formaldehyde composite flooring is sourced, suggesting that a less-expensive manufacturing process resulted in higher levels of formaldehyde by default. This appeared to be confirmed when 60 Minutes contracted independent labs to test several samples of composite flooring, with all but one sample presenting with significantly elevated levels of formaldehyde, a known carcinogen.

In late March, the US Consumer Protection Safety Commission (CPSC) announced that it was launching an investigation into Lumber Liquidators formaldehyde composite flooring. The Chairperson of the CPSC indicated Lumber Liquidators was co-operating fully, but given that long-term risks of formaldehyde exposure are not well known, the investigation could take months.

Plaintiffs are not waiting, having launched scores of class-action lawsuits against the company. The primary allegation is false advertising, given assertions made on the Lumber Liquidators website that it and its suppliers complied with environmental requirements.

To that end, boxes in which composite flooring is shipped have labels affixed, which duly state that the contents comply with environmental standards pertaining to safe formaldehyde levels. However, a spokesperson at the manufacturing facility where the composite flooring is made, in China, told 60 Minutes that some of the boxes were purposely mislabeled.

Environmentalists and health care advocates are duly concerned about the potential for illness if high levels of formaldehyde are emitted from flooring contained in an enclosed area, such as a bedroom. Levels of formaldehyde that fall within safe limits basically remain entombed in the wood. However, levels that are too high may effectively escape from the wood over a period of time. Formaldehyde is an approved ingredient in the glue used to fashion composite flooring. However, less-expensive manufacturing uses glue that contains higher levels of formaldehyde.

Lumber Liquidators products have been wildly popular given the growth in the engineered flooring market and the price point Lumber Liquidators has been able to achieve. However, fortunes have turned dramatically in recent months. As a result of the SEC filing and recent revelations about class-action lawsuits and expected criminal charges from the Department of Justice - not to mention other ongoing lawsuits by investors - the stock price of Lumber Liquidators is reported to have fallen 19 percent on April 29.

Stay tuned…