Estée Lauder Sues Deciem After Founder Shuts Stores

WSJ
A Deciem store in New Covent Garden Market in London.
A Deciem store in New Covent Garden Market in London. Photo: Smith Collection/Gado/Getty Images

Estée Lauder Co EL -1.40% s. filed a lawsuit against popular skin-care company Deciem and its founder after he announced in a video on Instagram that he was temporarily shutting down all of its stores because of what he described as “major criminal activity.”

Estée Lauder, which owns a minority stake in Toronto-based Deciem, is requesting that founder Brandon Truaxe be removed as co-chief executive and that the other chief, Nicola Kilner, serve as sole CEO on an interim basis, according to the suit filed in the Ontario Superior Court of Justice. In the suit, Estée Lauder also asks for a judge to remove Mr. Truaxe from the board of directors and bar him from managing Deciem’s operations and from modifying, deleting or disabling online posts related to the company.

An Estée Lauder spokeswoman confirmed that the company has commenced legal action, but declined to comment further on the litigation.

Efforts to reach Mr. Truaxe weren’t successful. On Thursday he posted a text exchange with a Canadian journalist on his Instagram account, in which he said, “I like it,” when asked about Estee Lauder’s attempt to push him out.

Deciem, which sells brands like The Ordinary, was founded in 2013 and expanded beyond Canada into the U.S., U.K. and elsewhere as its affordable products established a cult-like following. The company sells low-priced makeup and skin-care products directly to consumers at wholesale prices by eliminating distributors and other middlemen.

Mr. Truaxe earlier this week said in a video on Deciem’s Instagram that the company will “shut down all operations until further notice,” adding that “almost everyone” at the company has been involved in a major criminal activity including financial crimes. He didn’t elaborate, but went on to list various celebrities, executives and investors in the post without explaining their relevance.

By Wednesday, Mr. Truaxe appeared to have followed through on his threat. Deciem’s website displayed only a bright red screen, and the company’s stores in Canada, the U.S., the Netherlands, U.K., Australia and South Korea were shut.

Estée Lauder took a minority stake last year in Deciem, an anomaly for the beauty giant that typically pursues full acquisitions of founder-led brands.

“Truaxe has exhibited extremely erratic, disturbing, and offensive behavior in his role as President and Chief Executive Officer over the course of this year,” says the lawsuit. “[Estée Lauder] now comes to this Court seeking relief to save Deciem’s business as a result of destructive, egregious and unauthorized steps unilaterally taken earlier this week by Truaxe, or at his direction.”

The suit also asks that Deciem appoint an auditor to investigate Mr. Truaxe’s allegations of financial crimes and give a report on the company’s financial condition.

Deciem became a darling in the beauty sector largely because of the popularity of The Ordinary. The brand consists mostly of face serums and oils made with natural ingredients that often sell out before hitting shelves. Deciem also houses nine other skin-care brands including NIOD and Hylamide.

Despite securing a huge fan base, Deciem has had its own share of turmoil.

Mr. Truaxe fired Ms. Kilner in February only to bring her back as co-chief executive months later. He also fired Stephen Kaplan as chief financial officer earlier this year.

After taking over Deciem’s Instagram in January, he often posted rants against employees and competitors and even attacked fans.

In the court document, Estée Lauder also claimed that the founder announced operational decisions on social media without consulting the rest of the company.

On Wednesday and Thursday, Mr. Truaxe posted videos on Instagram from a hotel in Amsterdam in which he alleged that someone had broken into his hotel room and he demanded a police investigation.

A court hearing has been scheduled for Friday.

Write to Vipal Monga at vipal.monga@wsj.com and Jaewon Kang at jaewon.kang@wsj.com

https://www.wsj.com/articles/estee-lauder-sues-deciem-after-founder-shuts-down-stores-1539277196?mod=pls_whats_news_us_business_f

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