Case Study 7

For this module, you are required to submit Case Study 7, "Discussion Case: Lumber Liquidators’
Laminate Flooring," at the end of Chapter 14.

Respond to Discussion Questions 3, and 4 and submit to the Assignment box no later than Sunday 11:59
PM EST/EDT. (The Assignment may be linked to Turnitin.)

Keep in mind to integrate the Saint Leo core value of responsible stewardship, as it applies to this case.
Responses for each case discussion question should be in paragraph form and be approximately 250-300
words in length.

Discussion Case: Lumber Liquidators’ Laminate Flooring

People shopping for new flooring for their homes usually focus on appearance and price, not safety. But
this changed abruptly in 2015 when the CBS News program, 60 Minutes, aired a segment alleging that
wood laminate flooring sold by Lumber Liquidators con- tained dangerous levels of formaldehyde,
leading to a wave of consumer concern about the safety of products they walked on every day.

Lumber Liquidators was a leading retailer of hardwood flooring, selling to both home- owners and
contractors in around 350 stores in the United States and Canada. It carried a range of products,
including solid hardwood; laminate flooring; and bamboo, cork, and vinyl planks. Under the slogan
“Hardwood Floors for Less!” the company pursued a low- cost strategy, telling its customers on its
website that it negotiated “directly with the mills, eliminating the middleman and passing the savings on
to customers.” This strategy had proven successful, and the company had grown steadily since its
founding in 1996, earning revenues of over a billion dollars in 2013. Its share price had risen dramatically
from $13 in 2011 to $119 in 2013.

Formaldehyde was a strong-smelling chemical used in some building materials and household products
because of its properties as a preservative, fungicide, germicide, and disinfectant. In laminate flooring (a
cheaper alternative to solid wood), formaldehyde was sometimes used in glues that adhered composites
that were then topped with a thin layer of real wood. These products could release formaldehyde into
the air, in a process called off-gassing. At relatively low levels, airborne formaldehyde could cause short-
term eye, throat, and skin irritation. The chemical’s long-term effects were not fully understood. Some
studies showed that formaldehyde caused cancer in rats, and in 1987 the Environ- mental Protection
Agency (EPA) classified it as a human carcinogen (cancer-causing agent) under conditions of high or
prolonged exposure.

In 2015, regulation of formaldehyde in consumer products was, however, spotty. The EPA had drafted
national emission standards, but had not finalized them. The Consumer Product Safety Commission had
no rules for formaldehyde. Congress had passed a Form- aldehyde Standards Act, but it had not yet gone
into effect. One state—California—had adopted its own standards; in 2008 the California Air Resources
Board, known as CARB, had established limits for formaldehyde emissions for composite wood products
sold in that state, known as the CARB 2 standards.

In the 60 Minutes segment, which first aired on March 1, 2015, the executive direc- tor of the activist
organization Global Community Monitor told CBS that his group, working with an environmental
attorney, had purchased 150 boxes of laminate flooring from stores in California and sent them to
independent labs for testing. Products pur- chased at Home Depot and Lowe’s—other home
improvement stores—met the CARB 2 standards, but every sample of Lumber Liquidators’ products,
which were made in China, failed. In some cases, their formaldehyde levels were six to seven times over
the standard.

“You’re in a chamber so you’re living with it,” the activist said on the 60 Minutes epi- sode, speaking of
consumers with the products installed in their homes. “You’re sleeping in there. And you’re constantly
exposed. That’s the threat. The constant exposure to a potent carcinogen over a long period of time.”

60 Minutes followed up by sending investigators to several mills in China that manufac- tured laminate
wood flooring for Lumber Liquidators, posing as buyers and using hidden cameras. In one scene, a
Chinese manager said that flooring made with formaldehyde was 10 to 15 percent cheaper and
admitted that his mill fraudulently labeled the product. Here was the exchange, as the investigator
pointed to laminate flooring the manager had described as a “bestseller for Lumber Liquidators:

Investigator: “Is this CARB 2?” Manager: “No, no, no. . . . I have to be honest with you. It’s not CARB 2.”
Investigator: “Can I get CARB 2?”

Manager: “Yes, you can. It’s just the price issue. We can make CARB 2 but it would be very expensive.”

Interviewed on the 60 Minutes segment, company founder Tom Sullivan stated, “Our goal is to sell a
good product at a good price. We get the price by low overhead, huge volume, and being very efficient
at what we do. And we’re never going to sell something unsafe.” In response to footage showing the
apparently fraudulently labeled product, Sullivan said, “I will guarantee we’ll be in that mill tomorrow
and test it. And that is not anything we can condone in any way, to save a cent.”

In the wake of the 60 Minutes episode, Lumber Liquidators voluntarily offered free indoor air quality
screening to customers who had purchased Chinese-made laminate flooring, suspended all sales of
laminate products made in China, and hired an outside organization headed by former FBI director Louis
Freeh to review the company’s compli- ance programs. For their part, advocacy organizations and
attorneys pursued several class action product liability lawsuits against Lumber Liquidators, accusing
them of endanger- ing consumers and breaking California law. The government also took action; the
Con- sumer Product Safety Commission launched an investigation of Lumber Liquidators in collaboration
with several other federal agencies. “We are committed to move as fast as possible to get answers for
consumers,” said the CPSC director, “especially for the parents of young children.”

3. Do you think the government acted appropriately to protect consumers? What more can or should
it have done?

4. Do you believe that lawsuits filed by consumer activists will help solve the problem of unsafe
flooring?