Facts

Armstrong Flooring, a manufacturer of commercial and residential flooring, is a publicly-traded company listed on the New York Stock Exchange. While it generates revenue by selling flooring to third-party distributors and national home improvement chains such as Lowes and Home Depot, the majority of revenue comes from sales to residential flooring distributors. On November 15, 2019, Michael Chupa filed a class action complaint, representing those who purchased Armstrong common stock between March 6, 2018 and March 3, 2020, alleging securities fraud. Then on January 14, 2020, Randy Marker and other Armstrong Holder shareholders sought to be appointed lead counsel for the class action suit.

PLAINTIFFS' CONTENTIONS: Plaintiffs contended that around March 6, 2018, Donald Maier told investors that Armstrong was changing its residential business strategy to a "go-to-market strategy." This plan involved abandoning in-house marketing for Armstrong's residential products, instead relying on third-party distributors for marketing. This strategy would use distributors to grow Armstrong's residential business and that profit would be used to invest in marketing commercial and national account segments to further stimulate the Company's growth. Defendants continually hyped the strategy. In 2018, due to a potential increase of the price of flooring materials from China because of certain tariffs, distributors purchased too many Armstrong products. Defendants, fully aware of this excessive buying and consequent overfill of inventory disproportionate to consumer demands, still downplayed the situation. Unbeknownst to investors, distributors' immoderate purchases flooded the sales channel, limiting sales for the entire 2019 year. Moreover, distributors not only lacked the resources to market and sell the excess inventory, there was no demand for it, and the company's residential sales strategy was failing. Armstrong further refused to put the resources necessary to marketing to commercial and national accounts. Only in 2019 did the company make some disclosure in admitting that its 2018 inventory was dragging its sales and that the company's earnings outlook for 2019 was more than half of what was expected. On March 3, 2020, the company finally disclosed that the "go-to-market" strategy was a failure with the distributors not being equipped to market and sell the products. The company also admitted that it did not invest in marketing for its commercial and national account segments, which further negatively affected 2019 sales. Resultantly, investors suffered substantial damages when from March 6, 2019 to March 3, 2020, the company's stock value plummeted 85 percent.

DEFENDANTS’ CONTENTIONS: Defendants denied all contentions, disagreeing with plaintiffs as to whether defendants made statements or omitted materially false or misleading facts; whether there was intent or recklessness pertaining to the alleged statements or omissions; the amounts by which the price of common stock was allegedly inflated; the extent that factors such as economic and industry conditions had on the trading prices during that period; and whether defendants’ allegedly false or misleading statements proximately caused the losses.

Settlement Discussions

The parties engaged in mediation with mediator Robert Meyer.

Result

The case settled for $3.75 million.