In re Mohawk Industries, Inc. Derivative Litigation, Lead Case No.: 4:20-cv-00110-ELR (N.D.Ga.). On June 30, 2025, after more than five years of hard-fought litigation, the Hon. Eleanor L. Ross granted final approval of a shareholder derivative settlement which resolved claims brought on behalf of and for the benefit of Mohawk Industries, Inc. (“Mohawk” or the “Company”) by shareholders in several different jurisdictions. Johnson Fistel served as co-lead counsel in the primary federal derivative action, and as one of the chief negotiators of the settlement.
Specifically, the case alleged that the Individual Defendants breached fiduciary duties of good faith, loyalty, and care owed to Mohawk and its shareholders by: (i) knowingly permitting and/or turning a deliberate blind eye to the “Saturday Scheme,” whereby at the end of a given fiscal quarter, employees loaded delivery trucks with product ordered by customers, but not scheduled for delivery until future quarters, so that “sales” could be improperly recognized in the current quarter in violation of Generally Accepted Accounting Principles and Mohawk’s revenue recognition policies; and (ii) concealing Mohawk’s years-long inability to successfully ramp up domestic LVT (“Luxury Vinyl Tile”) production, expand its manufactured product offerings, and consistently produce salable LVT, as well as the true reasons for Mohawk’s growing inventory. Derivative Plaintiffs further allege that because of the Individual Defendants’ alleged schemes and alleged wrongful conduct, Mohawk misrepresented its current business, operations, and outlook through the dissemination of false and misleading statements, and omission of material information, in violation of federal and state laws and regulations. This misconduct allegedly devastated Mohawk’s credibility.
The Settlement requires the Board to adopt a comprehensive package of corporate governance, oversight, and internal control reforms that directly address the alleged deficiencies Derivative Plaintiffs contend permitted the alleged wrongdoing to occur, as well as broader structural reforms designed to enhance the overall independence, rigor, and effectiveness of the Company’s Board and management-level oversight.
In sum, the reforms bolster Mohawk’s processes related to its financial disclosures, enhancing its ability to detect and address production issues, and ensuring accurate identification and accounting for inventory. Specifically, as a result of the reforms, Mohawk’s board and management team will be better equipped to critically assess: (i) production difficulties; (ii) inventory calculations; (iii) end of quarter accounting; and (iv) the timing and content of disclosures addressing potentially material operational and financial risks as they arise. The reforms lay the foundation necessary to restore confidence in Mohawk’s ability to identify and cure production problems and to ensure inventory is properly identified and accounted for, and in the integrity of its financial and risk disclosures.
By fostering rigorous oversight of inventory management, LVT production, end of quarter accounting, and related public disclosures, and by enhancing the Company’s governance framework, the reforms will reduce the risk of similar alleged misconduct occurring in the future. Critically, the reforms will remain in place for the next five years.
Attorneys Michael I. Fistel, Jr., William W. Stone, Jeffery A. Berens, Oliver tum Suden, and Anthony E. Mance led the prosecution of the litigation for Johnson Fistel, and along with co-lead counsel, helped to achieve this excellent result on behalf of Mohawk and its shareholders.
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