Welspun faces class action lawsuit in US
Firm faces minimum $10-millionpenalty over product quality
Two class action lawsuits filed against Welspun India Ltd, that allege the company fraudulently labelled its bedsheets and towels as premium Egyptian cotton, is the latest setback for the supplier after Target Corp cut ties with the manufacturer for the same reason.
Welspun committed a “widespread fraud” in which “consumers who have purchased Welspun bed linens have overpaid for an inferior product,” a plaintiff alleged in an August 29 lawsuit in a New York federal court. The suit was filed by Hagens Berman Sobol Shapiro LLP, a consumer-rights action law firm that represented consumers in a $400-million suit against Apple Inc.
A Welspun spokesperson declined to comment. While Welspun’s stock fell 2.2 per cent to ~56.60 in Mumbai on Thursday.
The controversy over Mumbai-based Welspun has widened since Target said it’s halting business with the vendor after discovering sheets and pillowcases that were made with cheaper fibres were mislabelled as Egyptian cotton for two years.
India’s largest home textile manufacturer has seen its market value plummet by about half since then, with Walmart last week pulling the company’s sheets from its stores, while other big-box stores including Bed Bath and Beyond Inc are reviewing the authenticity of its products.
Welspun said it’s adopting new labeling practices and has hired EY to audit its supply processes. The company said the affected products represent about 6 per cent of Welspun’s annual business, which totaled ~5,980 crore ($890 million) in FY16.
Hagens Berman, which filed the first suit, had brought a class action case against Apple and five of the the country’s largest publishing companies in an alleged e-book price fixing scheme, according to the law firm. Welpsun is accused of falsely advertising its bed linens as 100 per cent Egyptian cotton, including linens marketed under the Fieldcrest label for Target, and selling them “at a significant premium,” according to the suit.
A separate class action case was filed on August 31 in a St Louis, Missouri federal court. Both lawsuits claim minimum damages of $5 million each — the threshold for a class action — and also filed suit against subsidiary Welspun USA Inc.