Lumber Liquidators’ Offer To Do Indoor Air Quality Testing Appears To Be A Sham by Whitney Tilson, Seeking Alpha.

Since the 60 Minutes story aired on March 1st, Lumber Liquidators hasn’t taken many basic, obvious steps that I think any honest and reputable company would, including:

a) Stop selling the Chinese-made laminate flooring in question (even if it doubted the validity of the testing 60 Minutes did, why take any chances with customers’ health and the company’s reputation, not to mention future liabilities?);

b) Offer a full refund to any customers who wanted to return unopened product;

c) Set up a Special Committee of the board, made up of independent directors, to oversee a full investigation, likely led by an experienced law firm; and

d) Hire an independent firm to do a wide range of testing, not just of Chinese-made laminate, but all of the company’s products.

This isn’t rocket science – it’s Crisis Management 101. Yet Lumber Liquidators hasn’t done a single one of these things.

However, at least at first glance, Lumber Liquidators does appear to have done one thing that an honest and reputable company would: offer a free formaldehyde test to concerned customers. Here’s what the company says on its web site:

Air Quality Test KitTo reassure our customers, we are providing indoor air quality testing at no cost to qualifying customers as the fastest, most effective way to measure the total level of formaldehyde in the home. The testing is being administered and the results produced by an independent, accredited lab. The customer is in control of the process, with clear instructions on the test and its results. We will conduct an in-depth evaluation of air quality and potential formaldehyde sources for any customer whose results are inconclusive or above established thresholds. Our customer care team will work with our valued customers throughout the process.

The home test kits are being provided as a step for customers with our laminate floors to help reassure them that their floor as installed is safe. Please fill out the form found at the link below to determine if your floor qualifies for the free test kit. If your floor does qualify, you will be walked through the process of ordering the test via an independent lab.

Lumber Liquidators’ customers are taking the company up on this offer in droves: on April 2nd, it reported that about 10,000 customers had requested air quality test kits. (Click here to see what customers receive and here to see the typo-ridden web page the lab set up to answer frequently asked questions.)

This all sounds great so, at least in this way, Lumber Liquidators is doing the right thing, right? Not so fast… Two recent lawsuits (click here and here) filed by Hagens Berman and Robertson & Associates charge that the indoor air quality testing program that Lumber Liquidators’ is offering anyone who bought its Chinese-made laminate is a total sham.

This came as little surprise to me, as I’ve spoken with numerous people in the industry and, without exception, they tell me that Lumber Liquidators is a notorious bad actor: cutting corners at every opportunity, selling very low-quality products and then not standing behind them, treating customers, installers and employees badly, and, most damningly, not being serious about compliance.

While I wasn’t surprised to learn that Lumber Liquidators’ testing program is a sham, the details were nevertheless shocking. This company’s brazenness and depravity appear to know no bounds.

The primary charges of the Robertson lawsuit are:

  1. To conduct the testing, Lumber Liquidators hired Pure Air Control Services (PACS) and two of its subsidiaries, Building Health Check, which sends out the test kits, and Environmental Diagnostics Laboratory (EDLab), which analyzes them. But EDLab is only certified to test for mold, not formaldehyde, and there is no evidence for Lumber Liquidators’ claim that EDLab is using other, unidentified “properly accredited laboratories”;
  2. The materials sent to customers make two false and misleading statements;
  3. PACS cannot be considered independent;
  4. PACS is doing both the sampling and the testing, which creates a conflict of interest and is contrary to industry best practices;
  5. PACS shares homeowners’ test results with Lumber Liquidators, a gross breach of confidentiality;
  6. The methodology used to collect the air samples is highly unreliable and unscientific and is likely to significantly understate the true level of formaldehyde in the air;
  7. Test results for four customers (plaintiffs in the two lawsuits) show troubling levels of formaldehyde, yet PACS told Lumber Liquidators’ customers not to worry, citing a guideline that only assumes “30-minute average concentration.”; and
  8. Even when customers, at their own expense, hired independent, qualified technicians to measure the formaldehyde in their homes, Lumber Liquidators was dismissive of the findings.

Let’s examine each of these, with a particular focus on 1), 6) and 7), which are the most damning.

1)EDLab is only certified to test for mold, not formaldehyde, and there is no evidence for Lumber Liquidators’ claim that EDLab is using other, unidentified “properly accredited laboratories.”

On its web site, Lumber Liquidators claims that its “testing is being administered and the results produced by an independent, accredited lab,” and in the materials sent to customers, EDLab claims that it is providing “AIHA Accredited Lab Analysis.” However, according to Robertson’s lawsuit:

EDLab is only accredited by AIHA LAP, LLC as an Environmental Microbiology lab. In other words, EDLab’s accreditation is limited to proficiency in testing microbiological (e.g., mold) samples and not chemicals such as formaldehyde. The proper AIHA laboratory accreditation program which qualifies a lab’s proficiency in performing chemical analysis, such as formaldehyde gas, is the Industrial Hygiene Laboratory Accreditation Program (IHLAP). EDLab does not have an IHLAP accreditation.

This is important, Alexander Robertson told me, because “it’s like going to a dermatologist to do brain surgery.”

The New York Times ran a story on Saturday about the Robertson lawsuit and, when the reporter asked EDLab and Lumber Liquidators for comment about the accreditation issue, here was the reply:

Alan Wozniak, the president of Pure Air Control Services, the parent company of the labs named in the lawsuit, declined to comment. A spokesman for Lumber Liquidators, Lou Colasuonno, said that Environmental Diagnostics Laboratory (EDLab), a subsidiary of Pure Air Control Services named in the suit, used properly accredited laboratories to conduct its testing.

In others words, EDLab’s parent company had no comment, but Lumber Liquidators, while not disputing that EDLab isn’t accredited, is saying not to worry because EDLab is farming out the testing to other, unidentified “properly accredited laboratories.”

Ha! I have trouble believing that this is anything other than yet another case of Lumber Liquidators blatantly lying to cover up its misdeeds, since every piece of evidence points to EDLab doing the testing, and there is no evidence whatsoever of other labs. Consider the following evidence:

  1. a) The lab reports say EDLab on the letterhead, and there is no mention of another lab (click here to see two lab reports EDLab sent to Lumber Liquidators’ customers, including one to a named plaintiff in the Robertson case, Patty Cottington).
  2. b) Both the packaging and the instructions sent with the “Bio-Badge” device state, “World Class Analysis Provided by EDLab.” Click here to see what Ms. Cottington received.
  3. c) Go to indoorairtest.com to see all of the test kits EDLab sells. They all say “EDLab” clearly on the packaging, indicating that this is the lab that analyzes the samples.
  4. d) Lastly, click here to see two emails Ms. Cottington received from EDLab. In the first one, dated April 8th, Cynthia Bailey of Building Health Check writes:

We have received thousands of samples due to the Lumber Liquidators story and we have a small backlog of reports to complete and send out.

Similarly, in another email a week later, Dr. Rajiv Sahay, EDLab’s Laboratory Director, writes:

We have received your on-line MY LAB REQUEST form and have added it to the laboratory queue. Thank you for your patience during our heavy demand for laboratory analytics. Due to unforeseen circumstances beyond our control we have accumulated a backlog of lab requests. However, EDLab is working day and night in order to clear a back log.

This email echoes what Dr. Sahay told Ms. Cottington when she called EDLab: that her samples were delayed because EDLab was receiving “thousands” from Lumber Liquidators’ customers and that his lab was doing the best it could to process all of them.

Note that neither Bailey nor Sahay make any mention of other laboratories – if there were any, they would surely have told Ms. Cottington something like, “The labs we are using to analyze all of the samples we have received are backed up.”

The reason they didn’t say this is obvious: because there are no other labs. If so, then Lumber Liquidators has hired a lab to test for formaldehyde in its customers’ homes that is not accredited to do so – and is now lying about it to cover it up.

2) The materials Building Health Check sends to customers make two false and misleading statements.

According to the Robertson lawsuit:

The instructions on the Bio-Badges sent to Plaintiffs claim the badge “analyzes for personal exposure and room concentration.” However, the instructions omit to inform the user that in its advertising on the internet, Building Health Services, LLC advertises that in order to conduct “personal exposure monitoring”, the user must clip the badge onto the person (e.g., clothing) “near the breathing zone” and wear the device for 24 hours. The instructions sent to Plaintiffs instruct the Plaintiffs to place the Bio-Badge in the center of the room four feet above the floor…

Second, the Bio-Badge packaging claims that it is the “Same Sample Screen Used by Professionals.” This statement is false…

…The Defendants’ “one-size-fits-all” approach to using the Bio-Badge is not “the most effective way to measure the total level of formaldehyde in the home” as represented on Lumber Liquidators’ Health and Safety webpage, nor is it the “Same Sample Screen Used by Professionals” as represented by Building Health Check, LLC and EDLab on the packaging for the Bio-Badge.

3) PACS cannot be considered independent.

In a declaration to the court associated with the Hagens Berman lawsuit, Elisabeth Black, a Certified Industrial Hygienist with 25 years’ experience, commented:

Finally, it is worth noting that the test kits provided by Lumber Liquidators cannot be considered an independent assessment of formaldehyde exposures. Lumber Liquidators has selected the test method, has contracted with the analytical laboratory, and will likely determine which criteria to use for evaluation. A scientifically valid test method should be selected, the sampling protocol defined, and the analytical laboratory contracted by a truly independent laboratory in order to reduce potential conflicts of interest.

4) PACS is doing both the sampling and the testing, which creates a conflict of interest and is contrary to industry best practices.

According to the Robertson lawsuit:

Pure Air Control Services, Inc. owns and has a financial interest in both the testing company hired by Lumber Liquidators and the lab which performs the analysis of the home test kits for Lumber Liquidators. This practice is contrary to the industry standard where an industrial hygiene company typically collects the indoor air samples and then sends those samples to an independent laboratory for analysis. This standard practice removes any conflict of interest between the company taking the indoor air samples and the lab reporting and explaining the results. According to the American Board of Industrial Hygiene Code of Ethics, an industrial hygienist must “disclose to clients or employees significant circumstances that could be construed as a conflict of interest” and “assure that a conflict of interest does not compromise legitimate interests of a client, employer, employee or the public and does not influence or interfere with professional judgement.” Neither Lumber Liquidators, Building Health Check, LLC or EDLab disclosed the financial ties or common ownership between the testing company and the lab Hired by Lumber Liquidators to conduct the indoor air sampling in the Plaintiffs’ homes.

When I asked Robertson to explain the importance of having one company do the indoor air sampling and then another analyzing the results, he explained:

In most cases, the conflict (if one company does both) is that, when analyzing the samples, they will over-report the results to drive more business to themselves.

But in this case, the concern is the opposite: that they’ll under-report the results (on behalf of Lumber Liquidators) to lull the customers into a false sense of security.

5) PACS shares homeowners’ test results with Lumber Liquidators, a gross breach of confidentiality.

The Robertson lawsuit notes:

Further evidence that the lab is not “independent” is the fact that EDLab routinely shares the results of the home test kits with Lumber Liquidators, a fact with both Lumber Liquidators and Building Health Check, LLC conceal from Lumber Liquidators’ customers who order the home test kits…This gross breach of confidentiality violates the American Board of Industrial Hygiene’s Code of Ethics…

6) The methodology used to collect the air samples is highly unreliable and unscientific and is likely to significantly understate the true level of formaldehyde in the air.

Elsewhere in her declaration, industrial hygienist Elisabeth Black commented on the testing program that Lumber Liquidators is offering its customers, which she says is “the cheapest possible way to test,” “cannot be considered valid” and “will likely provide some consumers with poor data that give them a false sense of security”:

Lumber Liquidators states that the formaldehyde test is “idiot proof”. It may be true that it is easy to collect and air sample using this test, but it is misleading in that it is usually quite difficult to collect a scientifically valid sample that accurately measures the true degree of risk related to the presence of formaldehyde containing flooring in the home. It is unlikely that a user will be able to collect a valid and useful sample using this oversimplified test protocol.

Hazard assessment is not a one-size-fits-all procedure. A qualified professional trained in environmental science, industrial hygiene, or toxicology should be employed to design a sampling strategy and collect sample data that will accurately and reliably represent the degree of risk for homeowners with formaldehyde-containing laminate flooring. A competent professional would design a custom process to account for various conditions in an effort to collect samples the represent worst-case conditions in order to be protecting for all conditions.

A number of factors must be considered when collecting valid and reliable air samples where the results will be used to assess whether the level of formaldehyde present in a home is safe. A qualified professional would take these factors into account when designing a sampling strategy. The IAQ Screen Check for Formaldehyde test kit does not adequately account for at least the factors listed below…

…Without these considerations, it is my opinion that the testing cannot be considered valid.

…Lumber Liquidators has selected the cheapest possible way to test formaldehyde in its customers’ homes, at the expense of valuable data. Even when the test kit is used as directed, the results will not likely be valid because the air sampling failed to account for existing conditions. In many cases, using [this] invalid and unreliable sampling strategy…will likely provide a false negative – a test result indicating the dwelling is safe, when in fact it is not. The resident then may feel that the issue is resolved and may delay or forego the steps that should be taken immediately to eliminate or reduce formaldehyde exposures.

…The Lumber Liquidators formaldehyde test kit procedure will likely provide some consumers with poor data that give them a false sense of security. The result could be years of additional exposure to formaldehyde above the health-based criteria ending up with health issues, ranging from respiratory disease to cancer.

7) Test results for four customers (plaintiffs in the two lawsuits) show troubling levels of formaldehyde, yet PACS told Lumber Liquidators’ customers not to worry, citing incorrect, dated information.
This table summarizes the formaldehyde levels shown by tests of the indoor air in the homes of four Lumber Liquidators’ customers who’ve recently installed the company’s Chinese-made laminate:

Lumber Liquidators

Notes: 1) The first three are tests by independent technicians; the Cottington results are from EDLab; 2) The lawsuit doesn’t specify, but the Brandt results are so high that I assume the technician did a chamber (CARB) test using deconstruction, not an air test, so the relevant baseline is CARB’s 0.011 ppm [110 ppb] standard; and 3) the 1,000 and 5,010 ppb results for the Collins family are from “air sampling at the floor level…and air sampling of laminate planks in an unopened package.”

As I discussed in my last article, More On Lumber Liquidators And Formaldehyde, even the lowest of these numbers is troubling – and the high ones indicate extremely dangerous levels of formaldehyde that would cause any sane homeowner to immediately rip out the flooring in question.

So what is Lumber Liquidators telling its customers? We only have one data point, Ms. Cottington, because she’s the only one of the four who used Lumber Liquidators’ test methodology. In her case, the 38 ppb that EDLab reported is higher than the 7-33 ppb range that four different regulators have set, as I showed in my last article.

So did EDLab tell Ms. Cottington that its test results showed levels of formaldehyde significantly above safe limits set by numerous regulators, including two in her home state of California? OF COURSE NOT! EDLab, no doubt following Lumber Liquidators’ instructions, in its report to Ms. Cottington wrote, “…any results which exceed 0.081 ppm [81 ppb] warrant a re-test for further evaluation,” citing this 2010 report by the World Health Organization [see page 142; 0.1 mg/m3 = 81 ppb]. Note, however, that this is for “30-minute average concentration”, which is not the appropriate standard for flooring in one’s home, where children and babies might be playing/crawling on the floor for many hours every day.

For more on what various regulators have established as safe levels of formaldehyde in indoor air, see my last article and also this part of the Robertson lawsuit:

For example, the Agency for Toxic Substances and Disease Registry (ATSDR) has published a “minimum risk level” for chronic exposure to formaldehyde of 0.008 ppm [8 ppb]. The California Office of Environmental Health Hazard Assessment (OEHHA) has recommended that formaldehyde levels not exceed 0.002 [2 ppb] for chronic exposure. Finally, the EPA has stated that formaldehyde concentrations in indoor air should not exceed 0.008 ppm [8 ppb] in order to minimize cancer risk. None of these lower threshold levels were included in the lab report from EDLab sent to Ms. Cottington. Ms. Cottington’s lab test results from EDLab exceeded ATSDR, OEHHA and the EPA’s recommended exposure levels.

8) Even when customers, at their own expense, hired independent, qualified technicians to measure the formaldehyde in their homes, Lumber Liquidators was dismissive of the findings.

Three of the four plaintiffs named in the two different lawsuits hired, at their own expense, independent, qualified technicians to measure the formaldehyde in their homes. According to the Hagens Berman lawsuit:

When the Brandts called Lumber Liquidators to report the technician’s findings, Lumber Liquidators was dismissive of the findings and did not offer to replace or even remove the flooring. A customer service representative claimed the independent test was not accurate, claimed that the tests reported on 60 Minutes were also not accurate, and insisted that all Lumber Liquidators’ products were completely safe and that there was no reason to remove the floors.

After dismissing the findings of both the lab findings reported on 60 Minutes and of the independent technician, the Lumber Liquidators’ representative directed Ms. Brandt to instead use the do-it-yourself air testing kit Lumber Liquidators would provide for “proper testing.” The Brandts were mailed the same kit that Industrial Hygienist, Elisabeth Black, evaluated and found unreliable. The Brandts performed the air test and mailed the kit to the address provided. Several weeks have passed and they have not yet received the results.

Similarly, in the Robertson lawsuit:

Plaintiff Craig Lyznick…hired an industrial hygiene company to test the indoor air in his home for formaldehyde gas. On or about March 20, 2015, Mr. Lyznick received the results of that testing, which showed an “elevated” concentration of 46 and 41 ppb, respectively in the two rooms where he had installed the Formaldehyde Flooring. On March 26, 2015, Mr. Lyznick notified both the Lumber Liquidator’s store where he purchased the Formaldehyde Flooring and Lumber Liquidator’s corporate office of the results of this testing and demanded that the Formaldehyde Flooring be removed immediately. On or about March 26, 2015, Mr. Lyznick received and email from “Misty” at Lumber Liquidator’s corporate office instructing him to send his test results to [email protected] Misty’s email further instructed Mr. Lyznick to retest his indoor air using Lumber Liquidator’s home test kit and submit that test for analysis and “we will review your test results as soon as we receive them.”

What Lumber Liquidators Needs to Do Right Now

In light of this overwhelming evidence, it appears clear that the testing program Lumber Liquidators is offering is a compete sham, sure to vastly understate the formaldehyde its customers are being exposed to (which is, of course, the company’s intention).

What Lumber Liquidators needs to do right now is very simple: immediately cease its current testing program and instead offer its customers a genuinely professional one that would give homeowners information they could rely upon – and either have peace of mind or know that they need to take action.

Of course, there is no chance that Lumber Liquidators will do this voluntarily, in part because of the cost (around $1,500/home) but mostly because the last thing the company wants is for its customers (or anyone else) to know the truth: that its Chinese-made laminate flooring is exposing large numbers of its customers to dangerous levels of formaldehyde.

But I’m optimistic that a judge or regulator will soon compel Lumber Liquidators to do the right thing, which will be bad news for the stock for a number of reasons:

  1. a) It will undermine the company’s credibility with customers, investors, regulators and courts;
  2. b) The costs of a proper testing program will be substantial (simply re-doing the ~10,000 tests already requested by customers would cost ~$15 million); and
  3. c) Results from a professional testing program will no doubt show very high levels of formaldehyde in the air of many customers’ homes, which will be a public relations disaster for the company; undermine its ludicrous claim that “all of our products are 100% safe”; significantly impact sales; lead to very high costs to remove and replace toxic flooring; and fuel lawsuits rooted in adverse health effects.

Needless to say, this remains my largest short position.

PS – A link to all 13 articles I’ve written since the 60 Minutes story aired is posted here.

PPS – I don’t read the message boards for the articles I publish, but I do want to hear thoughtful comments and questions so I invite my readers to communicate directly with me via Seeking Alpha messaging. I will post my answers on the message board.

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