Estée Lauder seeks to kick Deciem founder out of cosmetics company
Move comes after mercurial Canadian CEO said he was temporarily shutting down cosmetics company
Lawyers for Estée Lauder were in a Toronto court today trying to kick out the founder of a small Canadian cosmetics company they bought a stake in last year, the latest twist in the dizzying saga of one of the fastest growing names in beauty products.
The fashion and beauty conglomerate was seeking an injunction in the Ontario Superior Court of Justice against Brandon Truaxe, the founder of Deciem, one of the hottest beauty brands in the business. The injunction would effectively remove Truaxe from managing the company.
It's the latest in a series of controversies for the upstart company behind the hugely popular The Ordinary skin care line.
Headquartered in Toronto, and calling itself "The Abnormal Beauty Company," Deciem is one of the most disruptive operators in the beauty business, mainly because of its low prices. Estée Lauder bought a reported 28 per cent stake in Deciem last year, intrigued by the upstart company's growth potential.
Most of Deciem's products cost less than $12, and some cost less than $5 — price points that are unheard of elsewhere in the beauty industry, where markups can be as high as 80 to 90 per cent. The Ordinary beauty line also offers simple ingredients and relatively modest benefit claims.
The disruptive approach has led to a cult-like following of customers, and helped propel Deciem to a reported $300 million in annual sales.
But things at Deciem started going a bit sideways this year. There was a series of executive departures and firings.
Then a number of strange incoherent videos by Truaxe were posted on the Deciem corporate account.
The latest of those videos came this week when Truaxe announced he was closing all of Deciem's stores.
Thursday's move by Estée Lauder comes in the wake of those closures. The company was seeking an injunction to effectively remove Truaxe from the business he founded.
"We can confirm that we have commenced legal action in this matter," Estée Lauder told CBC News in a statement. "[But] we cannot comment further on this pending litigation at this time."
Truaxe posted a copy of Estée Lauder's application and emails from its lawyer on Instagram.
The email from Mark Gelowitz, a partner with the firm Osler, Hoskin and Harcourt was directed at Truaxe, and the accompanying motion stated that Truaxe has not complied with the unanimous shareholders agreement.
Estée Lauder is seeking an injunction citing the Canada Business Corporations Act (CBCA).
"The CBCA is a corporate statute that organizes the rights and responsibilities of various stakeholders in the corporation," said Anita Anand, J.R. Kimber chair in investor protection and corporate governance at the faculty of law in the University of Toronto's Rotman School of Management.
Anand said the act provides certain rights and remedies to shareholders, including the oppression remedy — cited in Estée Lauder's motion — that can be used by a number of stakeholders in the corporation in the case of oppressive or unfairly prejudicial conduct.
"I am not surprised that this case has arisen as there is often disagreement regarding the way in which a newly purchased division of a corporation is being run vis-à-vis the larger corporate enterprise," she said.
"Combining previously separate business entities is rarely a completely smooth process, especially given the differences in corporate culture, business philosophy and consumer products to name a few things," said Anand.
Estee Lauder is seeking an interim order removing Truaxe from Deciem's board of directors and asks that Nicola Kilner — currently Deciem's co-CEO — be named to the role alone.
In court, the motion was initially dealt with privately in judges chambers, before the judge agreed to put the case off until Friday.
The injunction asks that Truaxe be prohibited from any involvement in the company, as well as calling for him to be prohibited from any hirings or firings at the company. And it asks that Truaxe be prohibited from issuing statements or posting on any of Deciem's social media accounts.
Anand said going to court is usually not a preferred option.
"For parties to go to court, there is likely a breakdown in the normal means of communication," she said.
"It's very expensive and you're in the public eye and it's not overly attractive to either party."
In court, a lawyer for Deciem said he wasn't able to comment publicly. He did say he was acting on behalf of Deciem, not Truaxe and that "there is a difference."
He also said Truaxe himself did not have a lawyer representing him in court today.
One of Deciem's former executives, ex-CFO Stephen Kaplan who resigned in February, said today's developments weren't unexpected.
"I am not surprised based on Brandon's erratic behaviour, as evidenced by his Instagram posts." he said in an email.
"I hope that Estée Lauder can install a competent management team and with this in place, I believe that Deciem can continue to be a very successful company."
In a text to CBC News, Truaxe seemed to suggest he was OK with Estée Lauder's legal move. "I like it," he replied, when asked for his thoughts on what Estée Lauder was trying to do.
Truaxe then posted a screen capture of the text message exchange — complete with this reporter's phone number — on Instagram.
It has since been deleted.