CONSOLIDATED CLASS ACTION COMPLAINT 

Case No. 4:17-00554-YGR

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BERNSTEIN LITOWITZ BERGER 

 & GROSSMANN LLP 

DAVID R. STICKNEY (Bar No. 188574) 

(davids@blbglaw.com) 

BRANDON MARSH (Bar No. 268316) 

(brandon.marsh@blbglaw.com) 

JENNY E. BARBOSA (Bar No. 292385) 

(jenny.barbosa@blbglaw.com) 

12481 High Bluff Drive, Suite 300 

San Diego, CA 92130 

Tel: (858) 793-0070 

Fax: (858) 793-0323 

Attorneys for Lead Plaintiffs Public School Teachers’ 

Pension & Retirement Fund of Chicago and 

Arkansas Teacher Retirement System 

and Lead Counsel for the Class 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

OAKLAND DIVISION 

IN RE RH, INC. SECURITIES 

LITIGATION, 

 

Case No. 4:17-00554-YGR 

ECF CASE 

CONSOLIDATED CLASS ACTION 

COMPLAINT FOR VIOLATIONS 

OF THE FEDERAL SECURITIES 

LAWS 

DEMAND FOR JURY TRIAL 

Case 4:17-cv-00554-YGR Document 45 Filed 06/12/17 Page 1 of 100
CONSOLIDATED CLASS ACTION COMPLAINT -iCase No. 4:17-00554-YGR

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TABLE OF CONTENTS 

Page 

I. INTRODUCTION .............................................................................................................. 1

II. JURISDICTION AND VENUE ......................................................................................... 6

III. THE PARTIES.................................................................................................................... 6

A. Plaintiffs .................................................................................................................. 6

B. Defendants .............................................................................................................. 7

IV. SUMMARY OF THE ACTION ......................................................................................... 8

A. The Company Launched RH Modern Without Adequate Inventory .................... 10

1. RH Did Not Order RH Modern Products In Time For The 

Launch....................................................................................................... 10

2. RH Could Not Fulfill Orders Due To Lack Of Inventory ........................ 14

3. Customers Faced Long Delays And Cancelled Orders ............................. 20

4. RH Accumulated Inventory On Its Existing Product Lines 

In 2015 ...................................................................................................... 22

B. RH’s Top Executives Knew About The Lack Of RH Modern 

Inventory, Lead Times, And Cancellations .......................................................... 26

1. Friedman Waited To Finalize Designs ..................................................... 26

2. Friedman Staged Video And Photoshoots For RH Modern ..................... 29

3. RH’s Inventory Tracking Systems Showed To Executives 

The Lack Of Inventory.............................................................................. 31

4. Friedman’s Hands-On Management Style ................................................ 35

5. RH’s Management Closely Monitored The Overwhelming 

Complaints About RH Modern ................................................................. 37

6. Friedman Resorted To The Costly “Delight The Customer” 

Initiative .................................................................................................... 39

C. Defendants Promoted The Launch Of RH Modern And Inventory 

Levels .................................................................................................................... 44

D. RH Revealed The Truth About RH Modern Through Partial 

Disclosures While Continuing To Misrepresent The Launch And 

Inventory Issues .................................................................................................... 55

V. DEFENDANTS’ FALSE AND MISLEADING STATEMENTS AND 

OMISSIONS ..................................................................................................................... 67 

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VI. ADDITIONAL ALLEGATIONS OF DEFENDANTS’ SCIENTER .............................. 77

VII. LOSS CAUSATION ......................................................................................................... 81

VIII. PRESUMPTION OF RELIANCE .................................................................................... 83

IX. INAPPLICABILITY OF THE STATUTORY SAFE HARBOR AND 

BESPEAKS CAUTION DOCTRINE .............................................................................. 84

X. CLASS ACTION ALLEGATIONS ................................................................................. 85

XI. CLAIMS FOR RELIEF .................................................................................................... 86

COUNT I For Violations Of Section 10(b) Of the Exchange Act And SEC Rule 

10b-5 Promulgated Thereunder (Against All Defendants) ............................................... 86

COUNT II For Violations Of Section 20(a) Of The Exchange Act (Against 

Defendants Friedman and Boone) .................................................................................... 88

XII. PRAYER FOR RELIEF ................................................................................................... 90

XIII. JURY DEMAND .............................................................................................................. 90

 

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CONSOLIDATED CLASS ACTION COMPLAINT -1- 

Case No. 4:17-00554-YGR 

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Lead Plaintiffs, Public School Teachers’ Pension & Retirement Fund of Chicago 

and Arkansas Teacher Retirement System, allege the following based upon personal 

knowledge as to themselves and their own acts and upon information and belief as to all 

other matters. Plaintiffs’ information and belief are based on the ongoing independent 

investigation of their undersigned counsel. This investigation includes review and analysis 

of: (i) RH, Inc.’s (“RH” or the “Company”) public filings with the U.S. Securities and 

Exchange Commission (“SEC”); (ii) research reports by securities and financial analysts; 

(iii) videos and transcripts of RH’s conference calls with analysts and investors; 

(iv) Company presentations, press releases, and reports; (v) Company marketing material; 

(vi) news and media reports concerning the Company and other facts related to this action; 

(vii) price and volume data for RH securities; (viii) information from consultations with 

relevant experts; (ix) information provided by former RH employees; and (x) additional 

material and data concerning the Company, as identified herein. 

I. INTRODUCTION 

1. RH, Inc. – known until recently as Restoration Hardware – is a retailer of 

home furnishings. Lead Plaintiffs bring this class action against the Company and two of 

its top officers, Gary Friedman (its long-time CEO and Board Chairman) and Karen Boone 

(RH’s Co-President and CFO). This case arises from Defendants’ false and misleading 

statements regarding the launch of RH’s new product line, RH Modern, and the Company’s 

inventory levels. Lead Plaintiffs assert claims pursuant to Sections 10(b) and 20(a) of the 

Securities Exchange Act of 1934 on behalf of themselves and all other purchasers of RH 

common stock between March 26, 2015 and June 8, 2016 (the “Class Period”). 

2. RH sells its home furnishing products directly to consumers through several 

channels, including over 80 retail stores in the United States, outlet stores, websites and 

voluminous “source book magazines.” In the years leading up to the Class Period, RH 

experienced significant revenue growth. By the start of the Class Period, however, revenue 

growth and same-store sales from RH’s existing product lines had slowed substantially. 

RH sought to restore its sales growth by greatly expanding its product assortment through 

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new brands, particularly “RH Modern.” 

3. Defendants heavily promoted to investors the Company’s preparation and 

launch of RH Modern through press releases, dramatic video presentations, photo shoots, 

and statements during conference calls with securities analysts. Friedman sold RH Modern 

as “the most innovative and new concept in the world of home design” that “represented 

our finest work to date.” He described RH Modern as “the most important and significant 

new home furnishings business to be launched in the last 15 or 20 years.” Prior to the 

release of RH Modern, Defendants repeatedly assured investors that RH was prepared for 

the launch, stating that RH was growing its inventory levels, was making the “necessary” 

inventory investments, and could “compete on speed” of delivery for RH Modern. 

4. In-stock merchandise of RH Modern was key to the launch. Without 

adequate inventory, customers who placed orders for RH Modern products would face long 

delays to receive their products, leading to cancelled orders and costly accommodations. 

For the launch, RH required a lead time of at a minimum six months from ordering the 

product from its manufacturers to having it in stock. Even after products were designed, 

RH needed to complete several steps before the new products would be in stock. RH 

needed to secure manufacturers (usually in China) with capacity to fulfill orders, order the 

sample products, approve the samples, source the materials, have the products 

manufactured, ship them to locations in the United States, control the quality of the 

products, make any necessary replacement orders, receive replacements, and provide final 

customer delivery. As explained below, long lead times in the industry are “like physics; 

it’s the law of materials and production.” 

5. The Class Period starts on March 26, 2015, when Defendants announced the 

launch of RH Modern and also claimed that RH was “systematically placing orders now,” 

which “should help us with lead times [and] help us with inventory flow.” Defendants 

emphasized RH’s preparedness for the launch throughout 2015. For example, Friedman 

stated “[on] the Modern side, and the lead times, the wait times are a real disadvantage for 

the people in the marketplace today” but “[w]e are going to compete on speed just like we 

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would our current business.” He continued, “it’s going to be a huge competitive advantage 

versus how the marketplace exists and operates today.” Likewise, while releasing in June 

2015 a dramatic video revealing the wide variety of RH Modern furniture, Defendants 

stated that inventory would grow “ahead of sales.” 

6. Securities analysts and investors closely watched the launch and 

implementation of RH Modern. For instance, analysts noted in March 2015 that 

“[m]anagement . . . expects inventory growth to exceed sales growth in 2015 . . . as RH 

continues to invest in assortment/category expansion and improved in-stocks.” Following 

Defendants’ further promotion of RH Modern and inventories in June 2015, analysts 

reported that “management expects inventory levels to grow by year end as a higher level 

is needed to support growth and its new concept/categories.” In October 2015, analysts 

cited RH’s purported “better in-stock levels,” noting that “[i]nventory for RH Modern and 

RH Teen are largely in transit” and that “RH continues to expect inventory growth to 

outpace sales growth for the remainder of 2015, driven by the planned product launches.” 

7. In truth, however, the preparation and launch of RH Modern were debacles 

from the outset due to a near-complete lack of inventory. As explained below, Defendants 

marketed RH Modern before designs were finalized and without placing orders with 

manufacturers. When Defendants launched the RH Modern website in September 2015 

and released the 540-page RH Modern catalog, there was essentially no RH Modern 

furniture in stock. Friedman, who personally approved the designs for all RH Modern 

products, delayed finalization of them until just before the release. This prevented RH 

from even placing inventory orders, much less completing the additional steps in the supply 

chain for creation of inventory. 

8. And, as Friedman knew, the RH Modern catalog featured Photoshopped 

images of products that did not exist, and the videos through which he promoted RH 

Modern also showcased unavailable, unfinished products. The Company website also 

displayed products created in Photoshop that were digitally manipulated and not fully 

designed. RH created the Universal Product Code (“UPC”) so that a customer could order 

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it, but RH had never even seen the product. When customers ordered products, the clock 

started for them. Without inventory for RH Modern, customers immediately faced lengthy 

undisclosed delays, sometimes of over a year, and cancelled their orders. Friedman and 

Boone – aware of the lack of inventory, pervasive complaints and cancellations from 

myriad reports and sources – attempted a costly initiative to stem the flood of cancellations. 

Called the “delight the customer” initiative, it authorized all employees to give unlimited 

accommodations, such as $10,000 gift cards or entire orders for free, increasing expenses 

by $18 million in the first quarter of 2016 alone. 

9. Striving to leave the impression that the Company increased its RH Modern 

inventory ahead of sales, Defendants also reported that the Company’s inventory increased 

for the first three quarters of 2015. But, in truth, the increased levels of inventory came 

from RH’s existing lines. Excess inventory accumulated because sales growth for the 

existing product lines had slowed, and customers increasingly returned products. Eight 

hundred trailers stored unsold products from the existing line at a distribution center 

because the facility lacked capacity. Overflowing with excess inventory on the non-RH 

Modern lines, RH built additional warehouses and outlet stores.

10. The truth emerged in a series of partial disclosures and events between 

December 10, 2015 and June 8, 2016. On December 10, 2015, the Company disclosed its 

low “in-stock position” on RH Modern, causing the RH stock price to drop by over 10%, 

but Defendants continued to omit material facts when discussing publicly the launch of RH 

Modern. On February 24, 2016, Defendants further disclosed “shipping delays” for RH 

Modern that “poor in-stocks . . . suppressed orders,” and that resulting financial 

performance was far below the Company’s recent guidance. RH stock dropped by over 

25%. 

11. Defendants blamed RH’s vendors, “volatility in the U.S. stock markets,” and 

myriad macro issues for its financial results. On March 17, 2016, however, BB&T Capital 

Markets reported that, contrary to Defendants’ representations, RH still suffered from 

“shocking” back orders of RH Modern products and that the problems were “even worse 

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CONSOLIDATED CLASS ACTION COMPLAINT -5- 

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than we feared.” The Company’s value fell by $89 million. Finally, on June 8, 2016, RH 

disclosed “RH Modern production delays” and revealed $18 million in expense for 

customer accommodations following the RH Modern launch. RH further disclosed that on 

the non-RH Modern product lines there was “extra inventory” that was “bloating [the] 

balance sheet” and “overstock . . . across the board,” leading to “clearance events” and 

more outlet stores. RH’s stock price plunged again, erasing over $386 million in 

shareholder value. 

12. In total, the Company’s share price declined approximately 75% from its 

Class Period high of $106.49 per share, erasing more than $3 billion in shareholder value. 

The chart below shows the movement of the Company’s stock during the Class Period: 

13. In the aftermath, analysts repeatedly questioned management’s credibility, 

stating: “CEO Gary Friedman has stretched the limits of credulity with many of his 

statements”; “[i]nvestors should not buy management’s unconvincing explanations” for 

poor financial results; “the last two quarters’ debacles cast significant doubt on 

management’s credibility”; and RH’s “earnings reports have been filled with dubious 

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CONSOLIDATED CLASS ACTION COMPLAINT -6- 

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excuses and self-inflicted errors.” RH’s Chief Operating Officer left the Company, and the 

Company stated that three Co-Presidents, rather than Friedman, would have authority to 

make decisions going forward. 

14. By this action, investors seek redress for Defendants’ violations of the federal 

securities laws. 

II. JURISDICTION AND VENUE 

15. This Court has jurisdiction over the subject matter of this action pursuant to 

Section 27 of the Exchange Act, 15 U.S.C. § 78aa. In addition, because this is a civil action 

arising under the laws of the United States, this Court has jurisdiction pursuant to 28 U.S.C. 

§§ 1331 and 1337. 

16. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) and Section 

27 of the Exchange Act, 15 U.S.C. § 78aa. RH is headquartered and conducts business in 

this District, and many of the acts and transactions that constitute violations of law 

complained of herein, including the dissemination to the public of untrue statements of 

material facts, occurred in this District. 

17. In connection with the acts alleged herein, Defendants, directly or indirectly, 

used the means and instrumentalities of interstate commerce, including but not limited to 

the mails, interstate telephone communications, and the facilities of a national securities 

exchange. 

III. THE PARTIES 

A. Plaintiffs 

18. On April 26, 2017, the Court appointed the Public School Teachers’ Pension 

& Retirement Fund of Chicago (“Chicago Teachers”) and Arkansas Teacher Retirement 

System (“Arkansas Teacher”) as Lead Plaintiffs pursuant to 15 U.S.C. § 78u-4(a)(3)(B). 

19. Chicago Teachers is a public pension fund that manages retirement funds of 

current and former employees of public and charter schools in Chicago, Illinois. As of 

June 30, 2016, Chicago Teachers oversaw more than $10 billion in assets for more than 

63,000 members. As set forth in the attached certification, Chicago Teachers purchased 

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CONSOLIDATED CLASS ACTION COMPLAINT -7- 

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RH common stock during the Class Period and suffered damages as a result of the 

violations of the federal securities laws alleged herein. 

20. Arkansas Teacher is a public pension fund that provides retirement, 

disability, and survivor benefits to active and retired public school employees and 

employees of educationally related agencies of the State of Arkansas. As of April 30, 2017, 

Arkansas Teacher oversaw more than $15.5 billion in assets for the benefit of over 110,000 

members. As set forth in the attached certification, Arkansas Teacher purchased RH 

common stock during the Class Period and suffered damages as a result of the violations 

of the federal securities laws alleged herein 

B. Defendants 

21. Defendant RH is incorporated in Delaware and maintains its headquarters at 

15 Koch Road, Corte Madera, California. Effective January 1, 2017, the Company 

formally changed its name from Restoration Hardware Holdings, Inc. to RH, Inc. RH’s 

common stock traded in an efficient market on the New York Stock Exchange (“NYSE”) 

under the ticker symbol “RH.” As of October 31, 2016, there were approximately 41 

million shares of RH stock outstanding. 

22. Defendant Gary Friedman (“Friedman”) is, and was at all relevant times, 

RH’s Chief Executive Officer (“CEO”) and Chairman. Defendant Friedman signed RH’s 

annual reports on Form 10-K for the fiscal years 2014, 2015, and 2016, and also signed the 

Company’s interim quarterly financial reports on Form 10-Q throughout the Class Period. 

23. Defendant Karen Boone (“Boone”) is, and was at all relevant times, RH’s 

Chief Financial and Administrative Officer. On May 10, 2016, Defendant Boone was also 

named as one of RH’s Co-Presidents, along with Eri Chaya and DeMonty Price. During 

the Class Period, Defendant Boone led all financial and administrative functions for the 

Company, including strategic and financial planning, quality, accounting, treasury, tax, 

internal audit, human resources, investor relations, legal, and facilities. Defendant Boone 

signed RH’s annual reports on Form 10-K for the fiscal years 2014, 2015, and 2016, and 

also signed the Company’s interim quarterly financial reports on Form 10-Q throughout 

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CONSOLIDATED CLASS ACTION COMPLAINT -8- 

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the Class Period. 

24. Defendants Friedman and Boone are collectively referred to hereinafter as 

the “Individual Defendants.” The Individual Defendants possessed the power and 

authority to control the contents of RH’s reports to the SEC, press releases, and 

presentations to securities analysts, money and portfolio managers, and investors. Each of 

the Individual Defendants was provided with copies of the Company’s reports, press 

releases, and videos alleged herein to be misleading prior to, or shortly after, their issuance 

and had the ability and opportunity to prevent their issuance or cause them to be corrected. 

IV. SUMMARY OF THE ACTION 

25. RH is a retailer of luxury home furnishings such as couches, chairs, tables, 

lamps, and rugs. RH sells its products through its website, numerous retail stores in the 

United States, and its voluminous and glossy “source books,” i.e., product catalogs that are 

widely distributed to potential customers. As of April 29, 2017, the Company operated a 

total of 85 retail stores and 28 outlet stores in 32 states, the District of Columbia, Canada 

and the U.K. 

26. While many retailers have moved away from using large catalogs to sell their 

products and instead emphasize in-store and online sales, RH emphasizes the importance 

of its source books to stoke consumer interest and orders. RH’s source books display nearly 

every item in the product line and reflect the various styles, fabrics, and finishes available 

for each product. The source books commonly reach 200-300 pages in length. The source 

book most relevant to this case, the RH Modern source book (the “Source Book”), was 540 

pages. 

27. Customer satisfaction and conversion to sales depends heavily on how 

quickly RH delivers products. For example, during a September 11, 2013 earnings call, 

Defendant Boone explained to investors that the Company’s “number-one priority [is] to 

get the inventory balances up . . . [and] reduce our back orders[.]” On a June 11, 2014 

investor conference call, Defendant Boone emphasized that “by having better in-stock 

positions and lower back orders, our conversion improved and we were able to ship and 

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deliver products to our customers earlier, [which] resulted in additional net revenue 

growth.” RH also informed investors that the Company recognizes revenue on its sales 

when products are delivered to customers. 

28. During the Class Period, RH did not manufacture any of the products it sold; 

instead, RH contracted with manufacturers. Most of RH’s manufacturers – frequently 

referred to as RH “vendors” – were located overseas. RH sourced approximately 69% of 

its products from vendors in Asia in fiscal 2013, and that figure rose to 82% in fiscal 2015. 

In each year, most of the RH products sourced from Asia were from vendors in China. 

29. Sourcing products from foreign manufacturers involved significant lead 

times. As noted in a December 18, 2013 KeyBanc analyst report regarding RH, goods 

sourced from foreign manufacturers “require longer lead times than domestic 

manufacturing.” Leading up to the Class Period, RH stated that its “typical product lead 

times [were] 3-9 months” and that the Company was “require[d] . . . [to] provide vendors 

with significant ordering lead time.” Lead times are longer when launching a product line 

consisting of a high percentage of new products, due to the product assortment and 

newness. 

30. Leading up to the Class Period, the growth rates of RH’s in-store sales, total 

net revenues, and “comparable brand revenue growth,” had decelerated.1

 While RH 

reported comparable brand revenue growth of 31% for its fiscal year ending February 1, 

2014, it declined to 20% for the year ending January 31, 2015. For the same period, RH’s 

in-store sales growth rate declined even as its total leased selling square footage continued 

to climb, and the costs of its goods increased significantly. To restore growth, RH 

announced its entry into new categories of furnishings, particularly the “modern” segment. 

 

1

 RH defined “comparable brand revenue growth” as “including retail comparable store sales, 

including Baby & Child Galleries, and direct net revenues. Comparable brand revenue growth 

excludes retail non-comparable store sales, closed store sales and outlet store net revenues. 

Comparable store sales have been calculated based upon retail stores, excluding outlet stores, that 

were open at least fourteen full months as of the end of the reporting period and did not change 

square footage by more than 20% between periods.” 

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A. The Company Launched RH 

Modern Without Adequate Inventory 

31. In March 2015, Defendants announced the fall launch of a “game-changing” 

new product line. Defendant Friedman personally oversaw the design, preparation, and 

launch of RH Modern. Although RH needed to order RH Modern products from its 

vendors by March 2015 at the latest (approximately six months before the launch date) to 

have any significant inventory at the time of launch, Defendant Friedman delayed product 

development through changes to product assortment until the time of RH Modern launch. 

Contrary to public statements that RH was building inventory in 2015 and would grow 

inventory ahead of sales, RH failed to place advance orders and had essentially no stock of 

RH Modern products at the time of launch. Customers immediately faced undisclosed and 

indeterminate delays, causing pervasive customer dissatisfaction, written complaints, and 

order cancellations. 

1. RH Did Not Order RH Modern 

Products In Time For The Launch 

32. Multiple former RH employees explain that RH needed to order RH Modern 

products far in advance of the launch date in order to have RH Modern inventory available 

to fulfill customer orders at the time of the RH Modern launch. 

33. RH’s Director of Product Development from April 2009 to May 2015, for 

instance, explained that ordering in advance of a launch is “kind of like physics; it’s the 

law of materials and production.”2

 He explained that it takes at least six months from 

finalization of design to deliver product. After the product design is finished, it takes three 

 

2

 RH’s Director of Product Development from April 2009 to May 2015 oversaw product 

development. He worked on the RH Modern line, and oversaw vendors and designers in their 

efforts to design new products to present to Defendant Friedman. He worked directly with the 

executive team to review products and product strategies, and to manage styling direction. He was 

also responsible for working with manufacturers to get the goods produced and secure samples to 

be photographed for marketing efforts, and worked with various teams to style RH’s source books. 

He had access to RH’s various product and tracking databases and assisted with efforts to 

standardize and streamline the information in these databases. 

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to four weeks to make the first sample. Then there is transit time. There may be changes 

that need to be made once RH sees the actual product, which could add more time on as 

RH waited to get a new sample that also needs to be approved. Once RH has the correct 

sample, RH has to wait 90-120 days for the first orders to get to the port, which could be 

China or India, for example. It then takes 30 days to ship product on the water from China 

and 45 days on the water from India. It then takes another 2-3 weeks for the product to get 

through customs and to the RH distribution center. Finally, RH has to ship the product to 

the customer, which takes another week or two. According to RH’s Director of Product 

Development from April 2009 to May 2015, it was plainly obvious to Friedman, Boone, 

and other executives at the time of the launch that if they had not ordered the inventory, 

they would have six-month delays to get the RH Modern orders filled. 

34. RH’s Buyer from 2014 to 2016 similarly agreed that for the launch of RH 

Modern, they should have ordered product six months in advance.3

 RH’s Northwest 

Commercial Territory Leader from May 2015 to May 2016 also confirmed the lead time of 

at least six months, especially when the RH Modern products were coming from overseas.4

 

He agreed that when doing a big launch, you have to think about lead time, and also have 

a certain amount of that product in stock for the first orders that come in. He also stated 

that it was correct that before a launch, a company will typically order stock six months 

ahead of the launch to check for quality and have items in stock. According to RH’s 

Northwest Commercial Territory Leader from May 2015 to May 2016, it was apparent that 

 

3

 RH’s Buyer from 2014 to 2016 worked at RH headquarters and was responsible for product 

selection, development and purchasing of hard goods, and furniture for RH Modern and RH’s 

other lines. Inventory level was a part of his job scope. He also managed and organized conference 

calls with vendors to discuss items past due, to address manufacturing issues and get new due dates 

in place. In addition, he worked on a number of Defendant Friedman’s personal residences. 

Anything that dealt with getting product into the store came from his team. His team was 

responsible for both in-distribution-center deliverables and samples for new store openings. 

4

 RH’s Northwest Commercial Territory Leader from May 2015 to May 2016, based in the San 

Francisco region, has worked in the design industry for 20 years and was responsible for sales and 

business development for RH. He reported to Claire Eeles, RH’s current Senior Vice President of 

Global Business to Business, and Eeles reported to Defendant Friedman. 

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RH was going to have long lead times when it launched RH Modern, and RH had not 

ordered anything. 

35. RH’s Customer Service Lead Assist until April 2016 also stated that RH 

should have ordered the RH Modern product at least six months in advance of the launch 

to ensure that they had quality stock on hand for the launch.5

 She stated that RH should 

have had the Modern products in stock in March 2015 based on how the business works. 

36. RH’s former employees also explained the particular importance of ordering 

products well in advance of the launch given that vendors for the RH Modern launch were 

the same vendors for RH’s other product lines. RH’s Supply Chain Operations Analyst 

and Project Manager from 2012 to October 2015 explained that for RH Modern, RH used 

vendors who were producing other lines, some of whom were already having problems 

getting RH’s regular product in on time.6

 Yet, RH increased the production burden for the 

RH Modern line on top of that. RH’s Buyer from 2014 to 2016 explained that the vendors 

were telling RH in mid-2015 that they were already at capacity, and that if those vendors 

were still producing for other lines as well, RH should have ordered Modern more than six 

months ahead of time. He noted that when a vendor tells you that they have hit capacity, 

then there is nothing they can do. You can only move a machine so fast. “It was all ill 

prepared,” he remarked. 

37. RH’s Director of Product Development from April 2009 to May 2015 also 

agreed that because RH was using already busy vendors from its other lines to now produce 

for Modern as well, the delays were inevitable. He explained that a lot of the manufacturing 

 

5

 RH’s Customer Service Lead Assist until April 2016 was employed in customer service positions 

at RH for years leading up to the Class Period. She had access to RH’s inventory and ordering 

systems, handled customer escalations and accommodations, and oversaw a team of individuals in 

customer service. In her most recent position at RH, she reported to Karen Ferguson, who 

supervised corporate escalations and reported directly to Defendant Friedman. 

6

 RH’s Supply Chain Operations Analyst and Project Manager from 2012 to October 2015 began 

working on RH Modern a couple of months before the collection launched and was responsible 

for providing Company-wide reporting on returns, exchanges, and sales. She also worked with 

new RH vendors to make sure the contracts and paperwork were completed and that the vendors 

understood the process and requirements. 

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for RH Modern was done in factories with which RH had been working on RH’s Interiors 

line. RH’s Director of Product Development from April 2009 to May 2015 estimated that 

100% of the vendors for RH Modern were repeat vendors. Most had been working with 

RH for 7-10 years or more. He would estimate that RH used 10-12 vendors depending on 

the category. For instance, there were 4-5 different vendors for the lighting category. The 

vendors were in different countries, including Vietnam, China, and India. For RH Modern, 

the vendors were located primarily in China and Vietnam. It would depend on the category 

of product, but a significant amount of the RH Modern product comes from China. 

38. The product delays for the RH Modern launch were exacerbated because of 

the large percentage of products in the RH Modern line that were entirely new products. 

According to RH’s Director of Product Development from April 2009 to May 2015, 

because of all of the new products in the RH Modern line, it was obvious that RH needed 

to order inventory even more than 7 months in advance of the launch. With other RH 

product launches, the percentage of new products was lower than with RH Modern. For 

instance, only 30% of the products in the RH Interiors catalog was new. In addition, RH’s 

Director of Quality Assurance, Technology Division, from December 2015 to June 2016 

explained that in retail the very first thing you do if you are going to launch a new brand is 

ensure that you have inventory records.7

 However, with the RH Modern launch, there were 

brand new SKUs that did not exist in RH’s inventory management system, and that if RH 

does not have those items in the system, then it is extremely difficult to fulfill orders. Once 

you launch and all those items are up on the website but you cannot fill them for 6-7 

months, he explained, you are going to lose 90% of the orders. 

 

7

 RH’s Director of Quality Assurance, Technology Division, from December 2015 to June 2016 

worked at RH headquarters and was responsible for Quality Assurance and Engineering within the 

organization. He worked to redefine the Company’s engineering practices to better meet the 

business demands of RH’s current and new brands. He assessed and managed quality issues that 

arose within the Company’s inventory management system and supply chain application, as well 

as the merchandising and tracking systems. He was also involved in redesign efforts of the 

Company’s website. He has worked within the retail industry for 20 years, primarily in the quality 

assurance field. 

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2. RH Could Not Fulfill Orders Due To Lack Of Inventory 

39. Given RH’s failure to place timely orders with its vendors for the Modern 

launch, RH did not have stock to fulfill customer orders when it released the Modern 

Source Book. 

40. RH’s Customer Service Lead Assist until April 2016 explained that when the 

RH Modern Source Book came out, there was not one piece of Modern furniture in stock; 

there was nothing. She stated that the public statements that RH was building inventory in 

2015 and would grow inventory ahead of sales at the end of Q4 (see ¶¶128, 148, 183, 193 

below) were misleading. Employees heard about those statements, “but we also knew that 

was not the case.” She stated that that was not happening, and employees knew at the time 

that it was not true. RH’s Customer Service Lead Assist until April 2016 further stated that 

Boone’s statement in December 2015 about having inventory growth ahead of sales growth 

in Q4 mostly because of the “cadence of newness” (see ¶¶148, 193 below) was “absolutely” 

false because in December 2015 “we knew there was no inventory.” She stated that she 

understood Boone’s statement, “cadence of newness,” to refer to RH Modern. 

41. RH’s Northwest Commercial Territory Leader from May 2015 to May 2016 

confirmed that there was a disconnect between statements that RH was going to sell 

product, and the reality that the Company had not preordered any from its vendors by the 

time of the launch. RH’s Manager of Financial Planning and Analysis throughout the Class 

Period explained that when the Company put out a Source Book, it gave an indication to 

the public that product is available, but product was not available for RH Modern.8

 The 

product was not in stock and was back ordered for months. According to him, the issue 

 

8

 RH’s Manager of Financial Planning and Analysis throughout the Class Period worked at 

corporate headquarters and reported directly to RH’s Senior Director of Finance. As a member of 

the FP&A team, he was responsible for forecasting financials for the year, closing out the month, 

providing guidance for the earnings calls, and supporting the business and the planners and 

merchants in driving revenue and profitability. The FP&A team, who worked closely with 

Defendant Boone, provided analyses that were used in the earnings and revenue projections that 

RH published. The FP&A team was also responsible for providing Defendant Boone with an upto-date “CFO Package” every week that contained information on sales, demand, and how the 

Company was converting demand to net sales. 

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was when Modern launched, RH basically had no inventory in stock, and as a result, when 

RH received a lot of customers’ orders, they could not fill them. RH’s Product 

Development Leader in Dining Furniture until September 2016 also stated that, as far as 

Furniture and Textiles, there was nothing in stock at the time the website and Source Book 

launched.9

 When customers started placing orders, RH had no stock, she stated. 

42. RH’s Buyer from 2014 to 2016 similarly explained that when Modern 

launched, RH had some Modern product on display in the retail stores to show the product 

to customers. However, by the time of launch, RH had not ordered the Modern inventory, 

depending on the team and on some of the finishes. The brown and brass orders had been 

placed for certain items, but the majority of the line, no matter what the category, was not 

in stock. RH’s Buyer from 2014 to 2016 related that there were RH products listed on the 

RH website for sale that had not even been produced at the time of launch. According to 

RH’s Associate Store Leader from May 2013 to April 2016, RH had not ordered any RH 

Modern product for the stores at the time it launched other than floor samples, there was 

absolutely nothing in stock for RH Modern when it launched, and employees who saw the 

ship dates for RH Modern product concluded that the Company was making product as it 

was selling it.10 Other than the floor samples, she explained, “nobody had any stock.” 

43. As RH’s Customer Service Lead Assist until April 2016 explained, the 

problem was that there was no actual merchandise to ship when the Source Book was 

released. RH’s Buyer from 2014 to 2016 stated that before the launch it was foreseen 

 

9

 RH’s Product Development Leader in Dining Furniture until September 2016 worked at RH 

starting in 2014. She reported directly to RH’s Chief Creative Officer, Eri Chaya, and was 

responsible for every aspect of the product development life cycle, including product concepts, 

samples, productions, and marketing online and in source books. She was in charge of quality 

control, vendor management, and worked on customer relations issues as well. 

10 RH’s Associate Store Leader from May 2013 to April 2016 was an assistant store manager at an 

RH location and was directly responsible for inventory and human resources at that location. She 

frequently interacted with customers about placing orders, including whether products were in 

stock, and how long it might take to receive a particular product. She was able to access RH’s 

inventory system and ordering system in the store and could order products that the store did not 

carry in stock. 

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internally that there would be delays because there was no inventory. As RH’s Manager in 

Operations throughout the Class Period explained, the main problem was that nothing was 

ordered on time.11 

44. RH even had difficulty placing floor models of RH Modern products in its 

retail stores for display at the time of launch, let alone having inventory for customer 

orders. RH’s Senior Project Lead for Quality and Innovation from April 2015 to June 2016 

stated that when RH opened the RH Modern store on Beverly Boulevard in Los Angeles, 

a lot of the Modern products were not ready; hence, a lot of sample products were used on 

the showroom floor to populate the building for the opening.12 RH used just a sample of a 

sofa or a lamp to make the place “look full.” By sample, she meant a piece of furniture 

that was used for photography or for product development. She confirmed that RH was 

scraping the barrel to find products. RH’s Store Planning Analyst from August 2015 to 

January 2016 similarly stated that it seemed to him that they had almost no inventory for 

Modern when he did the store openings.13 He explained that there was nothing available, 

so then they had to have the vendors rush and produce one-offs so that a store would have 

an item. RH’s Senior Online Marketing Manager from 2014 to June 2016 similarly 

 

11 RH’s Manager in Operations throughout the Class Period worked closely with the product 

development, merchandising and planning teams. She worked on negotiating vendor contracts 

and worked with vendors on getting products to RH. She had access to the Company’s inventory 

database, which would show daily inventory levels for every product SKU. 

12 RH’s Senior Project Lead for Quality and Innovation from April 2015 to June 2016 worked for 

RH from 2012 to June 2016 as a project leader in various departments. In her most recent position, 

she worked with a team of individuals, as well as various departments, including merchants, 

customer service, and quality assurance, to improve business efficiencies. She also worked on the 

opening of the RH Modern gallery on Beverly Boulevard in Los Angeles, as well as the Company’s 

“delight the customer” initiative. 

13 RH’s Store Planning Analyst from August 2015 to January 2016 worked for RH from November 

2011 to January 2016. He worked at RH headquarters and in his most recent position, he was 

responsible for inventory management on the store planning side, as well as new store openings. 

In his last year with the Company, he was involved in five to six new store openings. 

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explained that at the time of the RH Modern launch, RH was still working on getting the 

new product into stores.14 

45. RH’s Design Leader for Design and Architecture from November 2014 to 

February 2016, whose team worked with Senior VP Steve Sebastian and CEO Gary 

Friedman, and met with Friedman once per week to go through the project, stated that the 

RH galleries with which she worked had minimal RH Modern furniture when they 

opened.15 She explained that there were no items in stock for customers when the stores 

opened. 

46. RH’s Buyer from 2014 to 2016 explained that because RH did not have 

inventory at the time of the launch, RH had to spend a lot of money on expensive air 

shipments in order to get an item to stores in time for the launch. Vendors would air ship, 

at a cost of thousands of dollars, samples from the factory to stores for openings. RH would 

air ship cabinets at $13,000-14,000 per piece just for shipping. Due to last-minute 

decisions, RH would ship several of these cabinets for each of its 5-6 stores in order to 

have product for the store opening. He explained that RH spent $200,000 on air ship 

charges for the Modern launch for one store. 

47. RH’s Buyer from 2014 to 2016 was personally involved in these special 

deliveries, sending emails to his superior, Logistics, the VP of Merchandising, and Supply 

Chain employees. He stated that Friedman would typically be informed of abnormal air 

lift charges. Friedman directly participated in store openings. According to RH’s Buyer 

from 2014 to 2016, Friedman would walk through a store three days before the opening, 

say that he did not like any of it, and instruct employees to get the product all in brown 

 

14 RH’s Senior Online Marketing Manager from 2014 to June 2016 worked at RH headquarters 

from 2010 to June 2016. She was responsible for overseeing all of the email marketing and website 

analytics for all RH brands, including RH Modern. She worked closely with RH’s website and 

source book teams. 

15 RH’s Design Leader for Design and Architecture from November 2014 to February 2016 was a 

member of the Gallery Development team at Company headquarters and worked on the 

construction and design of RH’s new galleries in Tampa, Florida, and Nashville, Tennessee. Each 

gallery had a floor specifically allocated for RH Modern productions. 

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instead of the color they had. He explained that he would be shocked if Friedman did not 

know RH spent substantial amounts for air shipments. 

48. RH’s Customer Service Lead Assist until April 2016 further explained that 

the launch of RH Modern was a disaster and that she and other employees knew that there 

was no RH Modern stock leading up to the launch. She stated that a couple of weeks before 

the launch of RH Modern, they were told that there was nothing in stock and that RH was 

only going to place orders with the vendor when orders were placed by the customers. 

Furthermore, they were only going to order product for customer orders that were placed. 

RH’s Client Services Advocate from June 2015 to December 2016 similarly stated that 

when RH Modern launched, employees were told that it would take some time to make the 

product because RH did not actually have any product.16 She was informed by her 

supervisors right when the line launched that RH would order the product with the vendor 

when the customers placed orders. 

49. RH’s Customer Service Lead Assist until April 2016 stated that the total 

absence of inventory at the time of the RH Modern launch was communicated at staff 

meetings, and all of this information came from the corporate office. Corporate advised 

the senior staff at the Tracy call center, and the information was communicated to leads 

like her in September 2015 and October 2015. The leads, like her, handled “escalations” 

of customer complaints.17 She stated that this information regarding RH Modern not being 

in stock was coming from Gary Friedman. “He’s the one that put it down the pike; 

everything came from him at that time because that was his baby; the Modern line was his 

 

16 RH’s Client Services Advocate from June 2015 to December 2016 worked in RH’s Call Center 

in Tracy, California, and was directly responsible for interfacing with customers and handling 

customer complaints concerning RH Modern and other product lines. 

17 When an “escalation” occurred, information regarding a customer order was referred to 

management. For instance, as RH’s Customer Service Lead Assist until April 2016 explained, an 

issue would be considered an escalation if a customer was not getting delivery on the day promised, 

if the customer felt overcharged, or if the customer received damaged product. The team that RH’s 

Customer Service Lead Assist until April 2016 was in dealt with escalations, and lead assists fixed 

customer issues and compensated customers. 

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baby.” Friedman was “hands on everything,” and the purchasing people were all located 

in Corte Madera. They were having weekly or daily meetings about it, so “there is no way 

that anyone in the corporate office did not know” that RH was not ordering inventory for 

Modern until customer orders were placed. 

50. RH’s Customer Service Lead Assist until April 2016 was told by a supervisor 

that the objective was for customers to place the orders, and after RH received so many 

orders, RH would place the order with the vendor. The understanding was that once RH 

got about 20 orders in for a bed, for instance, then RH would place the orders with the 

manufacturers. RH’s Customer Service Lead Assist until April 2016 stressed that RH had 

not produced anything at the time of the launch, and explained that RH was trying to sell 

something that it did not even have. RH’s lack of adequate inventory persisted in early 

2016. For instance, in March 2016 Defendant Friedman stated that the in-stocks on RH 

Modern were “in the 70% range.” RH’s Director of Quality Assurance, Technology 

Division, from December 2015 to June 2016 stated that, based on what he saw in the 

Company’s inventory system, there was “no way they could have been at 70%, looking at 

all the records I had and was looking at.”18 RH’s Director of Quality Assurance, 

Technology Division, from December 2015 to June 2016, who has been in the industry for 

about 20 years, and had worked at Gap, Inc. and multiple e-commerce and other retailer 

organizations, stated that “this is basically the worst storm I’ve ever seen happen.” He 

stressed that a basic premise was that if RH did not have inventory, it should not have been 

selling the product. 

 

18 RH’s Director of Quality Assurance, Technology Division, from December 2015 to June 2016 

worked at RH headquarters and was responsible for Quality Assurance and Engineering within the 

organization. He worked to redefine the Company’s engineering practices to better meet the 

business demands of RH’s current and new brands. He assessed and managed quality issues that 

arose within the Company’s inventory management system and supply chain application, as well 

as the merchandising and tracking systems. He was also involved in redesign efforts of the 

Company’s website. He has worked within the retail industry for 20 years, primarily in the quality 

assurance field. 

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3. Customers Faced Long Delays And Cancelled Orders 

51. Customers who ordered RH Modern products around the time of the launch 

faced immediate, lengthy delays. RH’s Customer Service Lead Assist until April 2016 

stated that in the beginning when RH Modern launched, every order that was placed went 

on back order because it was not in stock. She explained that the biggest issue for 

employees taking escalation calls was that customers ordered Modern furniture, but then 

there was a six-month delay. A lot of the orders were coming in 8-12 months later and “it 

was crazy,” she stated. Customers were calling to ask where their orders were, and then 

employees found out that nothing was made. RH’s Director of Quality Assurance, 

Technology Division, from December 2015 to June 2016 also stated that it was taking 6-9 

months, “if you’re lucky,” from the time the customer placed an order for them to receive 

it. 

52. RH’s Client Services Team Lead from April 2013 to July 2016 confirmed 

that when RH Modern launched in October 2015, the customer service complaints began 

immediately.19 He also confirmed that “absolutely” the delays for customers to receive the 

product began immediately and “there was no stock.” RH’s Buyer from 2014 to 2016 

similarly stated that immediately after the RH Modern launch, customers suffered long 

delays because there was no RH Modern inventory. He stated that certain items were not 

expected to arrive in the RH distribution centers until May or June 2016 even though the 

concept was launched on the website in September or October of 2015. There were delays 

of about nine months right at the time of launch. 

53. RH’s Product Development Leader in Dining Furniture until September 2016 

similarly stated that RH Modern customers placing orders in October 2015 were not getting 

their merchandise until August or September of 2016. She stated that there were a lot of 

 

19 RH’s Client Services Team Lead from April 2013 to July 2016 was responsible for training, 

mentoring and overseeing a team of customer service representatives. His call center handled all 

types of customer calls, including orders, complaints, and returns. The Tracy location where he 

worked housed both a call center and a product distribution center. He would personally visit the 

distribution center from time to time. 

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unhappy people, and customers were cancelling due to shipping delays. RH’s Manager in 

Operations throughout the Class Period similarly confirmed that customers were cancelling 

orders because of the delays with the RH Modern collection, and that there were really 

long delays for orders when RH Modern launched in October 2015. RH’s Senior Vice 

President of Product Development and Design from October 2015 to June 2016 similarly 

confirmed that customers were cancelling orders due to shipping delays, such as waiting 

eight months for a sofa.20

54. RH’s Northwest Commercial Territory Leader from May 2015 to May 2016 

also confirmed that when RH Modern launched, no one in his division could even sell it, 

and they were told not to sell it, because nothing was available. He stated that the Company 

had not ordered anything to have in stock. He further stated that people were shocked that 

RH Modern had such long lead times, and added that “No company does that.” RH’s Buyer 

from 2014 to 2016 recalled that around November and December 2015, the Company did 

not even have wood swatch samples in the stores to sell product. The vendors could not 

even make the 6x6-inch wood swatch sample because they did not have enough wood. 

55. RH’s Associate Store Leader from May 2013 to April 2016 similarly 

explained that when RH Modern launched, it was “back ordered so bad that no one had 

RH Modern at that point.” According to her, as soon as Modern went live, the vast majority 

of products were showing delivery in the six month timeframe. She recalled looking at a 

Shagreen bathroom set about 2-3 weeks after the launch that showed a year wait. She 

stressed that this was not a sofa, it was a set that included tissue covers and such. She did 

not understand why those types of products would take that long. She had not experienced 

delays to that extent prior to the RH Modern launch. Previously, every once in a while, 

very sporadically, one particular fabric in one particular sofa may show a 3-4 month back 

order, but it would be something they could substitute another similar product for. “We 

 

20 RH’s Senior Vice President of Product Development and Design from October 2015 to June 

2016 worked in the RH Baby, Child and Teen departments. In her role as Senior Vice President, 

she was responsible for planning the direction that her department would take for the current 

season. She also assisted with product design and bringing products to the market. 

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never saw six months to a year in regular RH or even in RH Baby and Child.” Some pieces 

had nine-month delivery timeframes. She recalled that about a month after launch, “we 

were drowning.” She explained that the required deposit for anything from RH Modern 

was half the price of the item. Hence, RH was asking people to put down a large amount 

of money and wait to receive it. 

4. RH Accumulated Inventory On 

Its Existing Product Lines In 2015 

56. RH’s inventory of merchandise increased as products from its existing, nonRH Modern lines accumulated. 

57. RH’s Store Operations and Communications Analyst until June 2016 

explained that RH’s internal data showed that surplus inventory of existing product 

increased significantly year over year from 2014 to 2015.21 RH sold only first-quality 

product at its retail stores, meaning anything less than brand-new, boxed product became 

inventory for RH outlet stores. He stated that due to growing inventory, there was quite a 

big push to open up as many outlets as RH could. RH’s Buyer from 2014 to 2016 similarly 

confirmed that there was a lot of aged inventory and product overstock on the original RH 

line. RH’s Senior Director of Merchandise Planning, Outdoor and Dining, from October 

2012 to July 2015 confirmed that when she left the Company in July 2015, the inventory 

level for RH’s Outdoor line was about 80% over plan.22 

58. RH’s Client Services Team Lead from April 2013 to July 2016 explained that 

approximately 60-80% of RH’s inventory in mid-2015 was product that had been returned 

to RH from customers and/or was damaged product. RH was “absolutely” having big 

inventory problems at the time. According to him, RH had a lot of customers return 

 

21 RH’s Store Operations and Communications Analyst until June 2016 worked in RH’s Outlet 

Division at Company Headquarters from 2014 to June 2016 and was directly responsible for 

ordering supplies for all the RH outlet stores. 

22 RH’s Senior Director of Merchandise Planning, Outdoor and Dining, from October 2012 to July 

2015 was responsible for inventory management for RH’s outdoor business, dining, table tops, 

cabinetry, and hardware. 

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inventory in mid-2015, and a lot of inventory was returned by customers who simply did 

not like the products or because it was not the product that they had ordered. He explained 

that RH only inspected for quality the first certain number of cartons of products that RH 

received from overseas. RH only inspected the first batch or first shipment, but they were 

getting 500-600 pieces in, so only inspecting the first shipment of product weighed heavily 

on the problems RH was having with inventory. RH’s Client Services Team Lead from 

April 2013 to July 2016 confirmed that there was “absolutely” a lot of inventory that was 

damaged and inventory that went to outlets because the quality was not what it was 

supposed to be. He also recalled that insect infestation was a big problem in Summer 2015. 

His offices were infested by furniture sent by the manufacturer to his warehouse, and the 

customers were experiencing this problem as well. Employees started getting a lot of calls 

from customers saying that the tables were infested. RH employees knew these complaints 

were true because the tables in their conference room were infested as well. The whole 

office had to be fumigated because the tables had bugs that spread to the cubicles. The 

bugs were everywhere; they were very small and looked like beetles with wings. 

59. RH’s Buyer from 2014 to 2016 similarly stated that inventory at RH was 

growing in 2015 because of additional unsold product from the existing RH line and not 

from RH Modern inventory, because in 2015 the majority of the RH Modern product would 

not have been in stock. Inventory for the existing line was growing in 2015 because the 

product was “not selling as well” and not “moving as quickly.” Modern did not launch 

until around October 1, 2015, so the inventory at that time would have been the existing 

line. He explained that Friedman had knowledge that the Company was sitting on surplus 

items through the weekly sales and inventory reports, which he believes were sent to 

Friedman every week in 2015 either in soft copy or hard copy. RH’s Buyer from 2014 to 

2016 further stated that Boone definitely received the weekly inventory reports, he would 

be “shocked” if Friedman did not receive the reports, and the inventory reports “absolutely” 

contained information on what needed to be marked down because there was excess 

inventory. 

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60. RH’s Manager of Financial Planning and Analysis throughout the Class 

Period explained that RH’s outlet stores did not make much money; rather they were 

simply an avenue to eliminate excess inventory and there was always excess inventory. 

RH’s Store Operations and Communications Analyst until June 2016 explained that RH’s 

distribution centers had too much inventory to house, including inventory that would not 

normally be sent to outlets. As a result, RH held warehouse sales in different locations 

across the country both in the winter of 2015 and winter or fall of 2014. According to RH’s 

Customer Service Lead until June 2016, RH had so much damaged product that it held 

warehouse sales at RH’s Tracy location in 2015. 

61. RH’s Manager in Operations throughout the Class Period confirmed that in 

2015, there was a problem of excess inventory on non-RH Modern lines and stated that 

there was over $200 million of the wrong inventory. “The inventory on hand was out of 

control,” she stated. Rugs was one of the areas she worked in, and one of the vendors, Ben 

Soleimani, dictated how much RH bought. Soleimani shipped the wrong rugs, but because 

RH prepaid him, RH performed emergency photo shoots and created new SKUs. She 

stated that RH had $170 million of rug inventory on hand. RH’s Supply Chain Operations 

Analyst and Project Manager from 2012 to October 2015 explained that the rug vendor 

was “Gary [Friedman]’s buddy,” they were close, and Friedman sponsored the vendor’s 

polo team. She explained that there were reports on the issue with the rug vendor and it 

was “a well-known and documented issue.” 

62. RH’s Manager of Financial Planning and Analysis throughout the Class 

Period similarly stated that there was a huge inventory issue with the original RH line, 

which was why RH was building additional outlet stores and warehouses. He stated that 

there were approximately 800 trailers of products from the existing RH collections parked 

at a distribution center, and the trailers could not be unloaded because the facility had no 

capacity. Every Monday morning, RH’s Manager of Financial Planning and Analysis 

throughout the Class Period attended a meeting with Boone, Chief Operating Officer Ken 

Dunaj, and the Inventory, Planning, and Finance departments, to review the forecast for the 

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month and how RH had performed the previous week. Any inventory issues would be 

brought up there, and it was also the forum for discussions about warehouse or sample 

sales or offering promotions. 

63. According to RH’s Vice President of Merchandising for Upholstered 

Furniture from 2016 to April 2017, management was concerned about the excess inventory 

of the existing line, and it was discussed in meetings and reports.23 There were “basic 

business reviews” on a daily basis, and if a particular department had an area of concern, 

that department’s inventory would be discussed. According to RH’s Manager in 

Operations throughout the Class Period, Gary Friedman “would get involved” with 

conversations about inventory and “yell.” She stated that there was a “ton of excess 

inventory” at the distribution centers because the product was not turning and because 

Friedman wanted products in numerous colors, which created a lot of inventory that did 

not sell. 

64. According to RH’s Customer Service Lead Assist until April 2016, 

Defendant Friedman’s later June 2016 statement about rationalizing the SKU count and 

optimizing inventory (see ¶¶174, 220 below) referred to liquidating unnecessary inventory

from the existing line, stating that “that’s exactly what it was.” If the product was not first 

quality, it would automatically go to the outlets. If the products were first quality but RH 

had too much inventory, RH would mark them down to perhaps 40% off, for instance. 

Regarding Friedman’s June 2016 statement about rationalizing the SKU count at RH, RH’s 

Manager in Operations throughout the Class Period similarly stated that the SKU 

rationalization process had been going on for a year because “there was a ton of product in 

the warehouse that wasn’t selling or moving.” They were “sitting on a ton of inventory” 

and it “just wasn’t selling.” 

 

23 RH’s Vice President of Merchandising for Upholstered Furniture from 2016 to April 2017 

worked at RH from 2005 to April 2017. She held numerous positions during her tenure at RH as 

a buyer or merchant. As Vice President of Merchandising for Upholstered Furniture, she managed 

cross-functional teams that interfaced between designers and customers. 

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B. RH’s Top Executives Knew About The Lack 

Of RH Modern Inventory, Lead Times, And Cancellations 

65. Both before and after the launch of RH Modern, the Individual Defendants 

were kept apprised of the Company’s RH Modern inventory and customer backlogs, 

complaints, and accommodations.24 As discussed above, they also knew about the 

accumulation of excess inventory for the existing lines. 

1. Friedman Waited To Finalize Designs 

66. Several former RH employees explained that Defendant Friedman delayed 

the design and finalization of RH Modern products, thus delaying orders to vendors until 

it was too late. 

67. As RH’s Buyer from 2014 to 2016 explained, the Planning Department 

ordered RH Modern products once the product designs were complete. According to him, 

there were a lot of late redesigns of RH Modern product by Defendant Friedman prior to 

the launch. He explained that Friedman would ask employees to start over again, which 

created a backlog of issues from the top down. These changes would cause big delays, as 

the product would have to go through testing and sampling. It created production issues 

because factories had to start over on their cutting room floor and were stuck with materials 

that RH no longer wanted to use. He further stated that Friedman made “start all over 

again” changes to RH Modern through July, August, and September 2015 until they 

finished in October 2015. RH’s Director of Product Development from April 2009 to May 

2015 explained that through early and mid-2015, Friedman had the final word on how 

much of the RH Modern would be ordered. 

68. According to RH’s Buyer from 2014 to 2016, in the three months leading up 

to the launch, the team would present product designs to Friedman. Friedman would reject 

designs even though it was expressed to him that rejection caused product delays. RH’s 

Buyer from 2014 to 2016 said that it was “absolutely” obvious that if they were making 

 

24 RH’s Customer Service Lead Assist until April 2016 explained that an “accommodation” was 

when RH gave customers gift cards, free items, or discounts. 

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last-minute changes, they were not going to have inventory to sell to customers in time. As 

he explained, “we were speeding to market literally,” and those changes by Friedman 

slowed down production. A month would be lost for approving one cabinet. They then 

had to get a run of 50 of those and hopefully have no hiccups because they were pushing it 

so quickly through the factory that there was no time to check for quality issues. As he 

further stated, those changes could really push the in-customer-home date to March if the 

product was ordered in September. 

69. RH’s Buyer from 2014 to 2016 estimated that perhaps once a week or every 

couple of days, Friedman would make design changes that would cause additional delays 

beyond the time for normal approvals for product fabrication. He stated that the late 

changes for RH Modern were unusual for how other companies operate. When Friedman 

was still making late changes and revisions to products, it delayed them; they could not get 

around it. 

70. RH’s Manager in Operations throughout the Class Period explained that 

Defendant Friedman changed his mind on feature colors for products, and that Friedman 

made constant changes for months. She stated that Friedman needed to sign off on 

everything, and sometimes meetings were delayed for months. If one color was supposed 

to go into the store as the feature color, Friedman would change his mind and want to 

switch to a different color, even though they had been producing the first color. When this 

happens, RH cannot get the necessary volume. She explained that the biggest lead time 

was in fabric items, and when Modern was launched, they made a lot of last-minute 

decisions of which color was to be featured. For instance, it was planned all through the 

initial part of it that an RH Modern product known as the “cloud sofa” would be in one 

fabric, and Friedman said he wanted to do a different color instead, so you have to start 

over in the production process to get that color. 

71. According to RH’s Manager in Operations throughout the Class Period, the 

delays resulting from such product changes were well known internally at the Company. 

As soon as one of the changes was made, and the planning team had not planned for a 

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promotion or color change, you had to start over in the timeline. “No one wants those 

changes to occur when you’re going through this,” she stated. For example, if it was early 

on in the process and Friedman wanted to change from linen white to classic, her role 

would be to say that you could not get the fabric until July 2017, or whatever the case may 

be. According to her, these numbers were presented to Friedman. Decisions were not made 

in order to get inventory available at the time of launch. She explained that if a launch was 

happening in September, but the order was not placed until August, product would not be 

in stock for people who wanted to buy it. She confirmed that Friedman forced delays in 

deliveries throughout 2015. Until the catalog got into the hands of the customers, Friedman 

made changes. 

72. RH’s Studio Manager in Catalog Photo Operations from 2012 to 2016 further 

stated that in the weeks leading up to publication of the RH Modern Source Book, there 

were a lot of last-minute changes.25 Friedman was swapping out products nightly before 

the book went to print. Employees would work until 2:00-3:00 a.m. reviewing changes. 

According to him, “It’s just complete chaos every day,” noting that the chaos was “for sure, 

absolutely, 100%” driven by Friedman. He stated that when the source book is wrapping 

and going to press in a couple of weeks and they are still shooting product that is not 

finished yet, you know you are not going to have enough product at launch. They could 

not get just one of some products on set to shoot. He noted that if they could not get their 

hands on five chairs to put around a table to shoot it all the way around, they knew they 

were not going to have 100 chairs to go to the stores or to the customers at the time of 

launch. Friedman was making changes at the last possible minute, he explained. 

 

25 RH’s Studio Manager in Catalog Photo Operations from 2012 to 2016 managed RH’s Photo 

Department and was responsible for ensuring that stages, products, equipment and personnel were 

ready for photoshoots. Product photos were used online in the Company’s website, in source 

books, and in Company presentations. He worked closely with producers to ensure that the correct 

layouts and products were photographed as planned, including RH Modern. He was also 

responsible for ensuring that design sets were ready for walk-throughs by Defendant Friedman, 

investors and VIP guests. 

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73. RH’s Vice President of Merchandising for Upholstered Furniture from 2016 

to April 2017 similarly stated that RH was mailing the Source Book based on samples that 

RH had not yet attempted to manufacture. RH’s Product Development Leader in Dining 

Furniture until September 2016 further confirmed that there were times when the product 

development was 85% done, and Friedman would intervene and say he was not satisfied, 

setting the team back to being only 50% done. The late decisions by Friedman absolutely 

caused delays, she explained. RH’s Creative Associate in Design and Planning from 2013 

to February 2016 similarly stated that the reason everything was backlogged was that 

Friedman and Eri Chaya took too long to make decisions and later blamed the problems on 

gas prices.26 She explained that everything takes time in the furniture world. In the 

furniture market, it takes time to make items and ship them from overseas. 

2. Friedman Staged Video And Photoshoots For RH Modern 

74. The first time RH showed the Modern product in a video to investors (on 

June 11, 2015), the video showed a wide variety of home furnishings, including furniture, 

lighting and additional products. Unbeknownst to investors, the video featured products 

that were unavailable, unfinished prototypes. 

75. RH’s Studio Manager in Catalog Photo Operations from 2012 to 2016 stated 

that it was “absolutely” obvious internally at the time of the June earnings call that RH was 

not going to have inventory for a launch a few months later. Some of the products shown 

during the June investor video may have been finalized and authorized pieces of furniture, 

but they were just samples, not the actual product because RH had not decided what it was 

going to make. The Studio Manager was involved in the photography of those prototypes 

at the time. The products came in pieces, and the RH employees would assemble them. 

However, after they were put together, they did not work. He stated that employees would 

 

26 RH’s Creative Associate in Design and Planning from 2013 to February 2016 worked for RH’s 

Chief Creative Officer, Eri Chaya, and was involved in RH’s project to build out executive 

headquarters. 

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then have to rig the products to make them work, and that this process was happening the 

night before the video was released in June 2015. 

76. As RH’s Studio Manager in Catalog Photo Operations from 2012 to 2016 

further explained, a lot of the electric items did not entirely work; the lamps or heavy 

chandeliers that were featured were not wired; and employees had to wire them for the 

video. He stated that furniture was held together for the video. Moreover, as he explained, 

some of the products shown in the June 2015 investor video were not approved products 

for RH Modern, so they were essentially products that did not exist. The brass lamp that 

they showed in the video was actually chrome and they had to make it brass for the photo. 

The photos for the June 2015 investor video were shot the day the video came out, and he 

wondered about Friedman, “How does he actually get away with what he is saying?” 

According to RH’s Studio Manager in Catalog Photo Operations from 2012 to 2016, RH 

gave the impression that the RH Modern products would be available in the store when, in 

fact, RH sent samples to the store in order to have product to show. He stated that when 

they put the product together, they knew it was not going to come that way when it was 

delivered to the customer. He stated that employees knew that RH Modern was not going 

to launch when the Company said it would because RH did not have the products, he said 

“we knew that wasn’t possible” because “we didn’t have anything to shoot.” 

77. RH’s Buyer from 2014 to 2016 explained that at the time of the launch, there 

were items for sale on the RH website that did not exist because they were not fully 

designed. He stated, for instance, that a week or two before the RH Modern launch, 

Friedman decided that he wanted to create a brown oak and stainless steel color 

combination. As a result, employees Photoshopped those items onto the website. They 

created the UPC (“Universal Product Code”) so that a customer could order it, but RH had 

never even seen what this item would look like. They simply had a vision of this item, 

never saw any approvals, and did not know how it was going to result if produced. As 

RH’s Buyer from 2014 to 2016 further explained, Friedman knew that RH was showing 

fake items because he saw the catalog and was told that they had to use Photoshop. 

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Friedman would then approve it. RH’s Buyer from 2014 to 2016 was present for some of 

these discussions in the approval meetings. RH’s Manager in Operations throughout the 

Class Period similarly stated that in general the development process went until the 

eleventh hour, items were photographed and digitally manipulated, and catalogs launched 

long before finishes were approved on the product. She confirmed that some products 

shown in the RH Modern Source Book were Photoshopped and did not actually exist. 

78. RH’s Studio Manager in Catalog Photo Operations from 2012 to 2016 also 

described how on several occasions when there was nothing to shoot, RH employees would 

set up fake photoshoots because investors were going to walk through. They would have 

personal assistants, who normally got coffee and lunch, posing as photographers in front 

of cameras. He explained that RH did multiple days of such fictitious photo shoots leading 

up to the launch of RH Modern in 2015. There were times when he was one of the 

photographers for the shoots, and he saw Friedman giving these deceptive photo walkthroughs in Summer 2015. He recalled that there were multiple instances when 

shareholders were coming through after Friedman had thrown a rage, broken down the set, 

and gotten rid of all the photo shoot materials. At 2:00 a.m. Friedman would say that people 

are coming through and require employees to assemble a fictitious shoot to make it appear 

that they were busy. 

3. RH’s Inventory Tracking Systems 

Showed To Executives The Lack Of Inventory 

79. RH’s top executives continuously monitored RH Modern inventory, sales, 

and back order data through Company databases, reports, and meetings. 

80. RH’s Manager in Operations throughout the Class Period explained that RH 

had an online reporting system called Merchandise Drill Down (“MDD”), and that 

Friedman would look at that “regularly.” MDD is a web-based database that pulls 

information from the inventory management system. It shows orders, in transit volume, 

and in stock volume by SKU. A user can organize the data at a high level – such as at the 

collection level or department level – or look at individual items. According to her, 

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Friedman looked at it constantly. Any time she was in a meeting when inventory came up, 

Friedman was looking at MDD. She confirmed specifically that in mid to late 2015, there 

were meetings where Friedman checked MDD. She did not recall how many meetings 

occurred like that between April and December 2015, but she recalled he was on MDD 

during a whole meeting, asking questions about inventory. He would regularly look at 

MDD data. 

81. RH’s Manager in Operations throughout the Class Period further explained 

that, in addition to showing inventory, MDD also showed daily sales. If you wanted to see 

how sales are comping yesterday to today, that is where you would look to see flash 

numbers. It showed what guidance is, what last year was, what this year is, etc. It also 

showed back order units, and demand versus on-hand or on-order inventory. As she 

explained, it is what you look at for performance, and the CEO has to know what sales are 

like. She further confirmed that there were really long delays for orders when RH Modern 

launched in October 2015, and that on MDD, one could see how many sales there were for 

a product, as well as open orders, and the facts that there was zero inventory and zero in 

transit. Friedman was able to see in MDD that orders were out of line with inventory. 

82. RH’s Manager in Operations throughout the Class Period stated that RH 

employees created “in-stock reports,” which showed what the “in-stock” dates were for 

certain products. RH’s Buyer from 2014 to 2016 also confirmed that at the time of the RH 

Modern launch, Friedman received reports that showed that, other than the store display 

items, there was no other RH Modern inventory in stock. He knew this because his 

managers would have meetings with Friedman, and then tell him and his team what they 

needed to focus on now, and that they needed to shift their strategy and focus on the instock rate. He stated that Boone definitely received the weekly inventory reports. RH’s 

Director of Product Development from April 2009 to May 2015 agreed that if Boone 

wanted to figure out the very latest inventory statistics at any time, she could just walk 

down the hall and talk to that person in charge of inventory. RH’s Manager in Operations 

throughout the Class Period explained that everyone had access to a web-based database 

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that showed SKU levels on a daily basis. Merchants were looking at demand versus back 

orders versus what is actualized sales and “Karen [Boone] had access to that as well.” 

83. RH’s Customer Service Lead Assist until April 2016 explained that RH also 

used a system called CW, which was a DOS-based software program. Everyone had access 

to CW, and employees could tell immediately what was in stock at the time, and the extent 

of back orders. RH’s Associate Store Leader from May 2013 to April 2016 similarly stated 

that the Company used a DOS-based system that allowed employees to view certain 

inventory levels. RH’s Logistics Support in Supply Chain from April 2015 to January 2017 

also stated that CW was the main tool he and those in his department used to check 

inventory, that the system went back years, and that it showed what inventory was in the 

distribution center as well as what products were on back order.

27 CW also showed all of 

the notes the customer service employees wrote about what was wrong with orders. They 

would note if the customer again received the wrong item and whether the order was part 

of the “customer delight” initiative (see ¶¶103-14 below). RH’s Logistics Support in 

Supply Chain from April 2015 to January 2017 also noted that RH used a system called 

LeanTMS, which showed where RH products were located. 

84. RH’s Customer Service Lead Assist until April 2016 related that three 

analysts who worked in RH’s Tracy facility would export information from CW into Excel. 

These analysts would send those Excel reports to Friedman. The reports showed how many 

orders RH had on the books, how many were back ordered, and the items which were back 

ordered. The reports were sent weekly to Friedman. RH’s Customer Service Lead Assist 

until April 2016 knew the reports were sent to Friedman because within five minutes, 

Friedman would call one of the people sending the reports to discuss the reports. Then, 

 

27 RH’s Logistics Support in Supply Chain from April 2015 to January 2017 was responsible for 

finding inventory discrepancies within Supply Chain, including cancellations, overages, shortages, 

and damages. His review included inputs from customers, third-party logistics service providers, 

as well as distribution centers. The Logistics Support team worked as a liaison between other 

departments on supply chain issues, and had access to RH’s various reporting and tracking 

systems, including inventory. He also worked on the Company’s “delight the customer” initiative 

and was responsible for running analytics on product quality issues. 

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one of the people who worked in the analysts’ office, Elizabeth Traina, would come out of 

the office and stand by the door and state that Friedman was not happy. RH’s Customer 

Service Lead Assist until April 2016 stated that Friedman responded to the reports in 2015 

and into 2016. She explained that these were inventory and back order reports. “There’s 

no way that Gary did not know; there’s absolutely no way he did not know what was going 

on . . . his thumb was in the pie the entire time.” She further explained that Friedman 

sometimes responded to the analysts’ reports by email or telephone. Her understanding is 

that Friedman responded to every report he received, to acknowledge he received it. 

85. RH’s Customer Service Lead Assist until April 2016 stated that Friedman 

had access to CW every day, and made notes on orders. For instance, Kim Kardashian – 

the celebrity – called to complain because items had not arrived. The complaint escalated 

to the corporate escalation team, who contacted Friedman. Corporate escalations told 

Friedman that Kim Kardashian called, that they needed this order, and that they needed 

him to put a note in the system that it is okay to get the order in now and fly it in. Friedman 

noted in the system that it was okay to do what was necessary for that order. 

86. RH’s Buyer from 2014 to 2016 described a weekly sales report that each 

department downloaded and that Friedman received throughout 2015. The reports showed 

what items were sold last week, the number of items sold last week, dollars left in the bank, 

the number of items available to sell, and the projected weeks of supply. Everyone was 

fully aware of what was going on at any given time, RH’s Buyer from 2014 to 2016 

explained. The reports showed on a SKU-by-SKU basis what inventory you had, and it 

also had general statistics on RH Modern. For instance, the information was organized by 

RH Modern or Classic. For RH Modern, it would show the sales week over week, the top 

performing item, how many units were sold, and how much money RH made. The 

information was also available by category, such as cabinets, or even further by wood 

cabinets, or by finish or color or size. RH’s Buyer from 2014 to 2016 stated that every 

single executive in the Company would receive a copy of the weekly sales report. 

Friedman managed the sales and received the reports. The weekly report also showed that 

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RH was out of stock on specific items and when RH would receive another shipment of 

the item. The weekly report showed, for instance, that the next order would not be received 

until May 2016 even though it was December 2015. 

87. RH’s Supply Chain Operations Analyst and Project Manager from 2012 to 

October 2015 explained that the Company had a system called “GT Nexus” that tracked 

product shipments from vendors, and that she used GT Nexus to create reports on items, 

such as the item’s actual location and where it was supposed to be located. Her reports 

were elevated to the VP of Transportation. In the GT Nexus software, vendors could accept 

the purchase orders in the system, and the system would show when products shipped, and 

where in transit the products were. 

88. RH’s Manager of Financial Planning and Analysis throughout the Class 

Period recalled attending a meeting in December 2015 with Defendant Friedman and many 

other C-level executives during which Friedman asked employees to go on the website, 

pick a product, and see how long it was going to take to ship. “He was freaking out” and 

getting really angry, RH’s Manager of Financial Planning and Analysis throughout the 

Class Period stated. 

89. The accounts of RH’s former employees are corroborated by RH’s own 

allegations in a complaint against two former executives. In January 2017, RH filed a 

complaint indicating that, in her role as an executive, a former RH executive “received 

regular financial reports regarding virtually every aspect of the company’s business. These 

reports included details on which products were selling well (and in what regions that 

occurred), what products had the higher profit margin, which locations were doing better 

than others, which marketing initiatives succeeded and which ones failed, and more.” 

4. Friedman’s Hands-On Management Style 

90. Several former RH employees explained that during the Class Period, 

Friedman – who had been CEO since before the Company’s 2012 IPO – continued to run 

RH like a small company. In a Company with concentrated leadership where Friedman 

needed to approve product designs and purchases, Friedman was well aware of the late 

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product approvals and the lack of inventory for RH Modern. 

91. RH’s Director of Product Development from April 2009 to May 2015 stated 

that at RH, Friedman mandated that he approve everything. Friedman is advised by the 

merchant and planning teams as to expected demand and what will work for the customer. 

However, Friedman ultimately makes the determination on what will be ordered and often 

made last-minute changes to product assortment. 

92. RH’s Director of Product Development from April 2009 to May 2015 

described RH’s leadership structure as “flat, small, and concentrated” with teams reporting 

to Friedman. The merchants (also known as “buyers”) analyze trends and identify needs 

for the product assortment. The planning team arrives at a budget for each of the categories 

of product. The merchants and planners work together as a team to plan the purchase of 

product. According to RH’s Customer Service Lead Assist until April 2016, Friedman met 

with the buyers daily in his office in the six months leading up to the RH Modern launch. 

She stated that Friedman knew they had not ordered anything besides prototypes prior to 

the launch, and that she was informed of buyers’ interactions with Friedman through the 

escalation process. RH’s Manager in Operations throughout the Class Period similarly 

explained that in meetings where Friedman was informed of how changes would delay 

product, Friedman would respond, “Make the factories move faster!” 

93. As RH’s Director of Product Development from April 2009 to May 2015 

explained, everything was bottlenecked for approval by Friedman before being sent to the 

printers. According to RH’s Director of Product Development from April 2009 to May 

2015, everyone knew that if they moved forward with something without Friedman 

commenting on it, “then they may suffer the wrath.” 

94. According to RH’s Manager in Operations throughout the Class Period, 

Friedman had to sign off on any design and/or selection of products, and that was how they 

ended up with inventory management issues. RH’s Buyer from 2014 to 2016 agreed that 

Friedman was a very hands-on CEO, and that Friedman approved virtually everything that 

went into the RH Modern catalog. RH’s Senior Director of Merchandise Planning, 

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Outdoor and Dining, from October 2012 to July 2015 similarly stated that there was a lot 

of pressure from the top down. RH’s Design Leader for Design and Architecture from 

November 2014 to February 2016 explained that Friedman was very involved in the 

process. Her team met with Friedman once a week to go through the RH Modern project, 

and the whole approval process was very slow because they depended on Friedman to make 

decisions on everything. RH’s Inventory Control Manager from 2013 to June 2016 stated 

that when Friedman passed something, it was “the law cast in stone.”28

5. RH’s Management Closely Monitored The 

Overwhelming Complaints About RH Modern 

95. RH’s former employees explained that RH’s executives, including

Defendant Friedman, received weekly reports showing customer complaints and the extent 

of customer accommodations after the launch. In addition, RH’s top executives listened to 

recorded telephone calls with customers, and emailed RH employees about customer 

service issues. 

96. RH’s Customer Service Lead Assist until April 2016 explained that Karen 

Ferguson handled the severe customer service escalations as well as any escalation that 

dealt with a famous or wealthy person. Ferguson had a spreadsheet that she would have to 

submit to Friedman at the end of each day about the escalations she was working on and 

what they entailed. Friedman “received daily summaries of customer complaints from 

Ferguson,” and RH’s Customer Service Lead Assist until April 2016 saw these reports. 

RH’s Customer Service Lead Assist until April 2016 stated that she would be in Ferguson’s 

office speaking about work obligations, and would see an IM (instant message) from 

Friedman about a customer accommodation on the RH Modern line arrive on Ferguson’s 

computer screen. She stated that when she would stand in Ferguson’s office and speak 

 

28 RH’s Inventory Control Manager from 2013 to June 2016 worked at RH from 2008 until June 

2016. As Inventory Control Manager, he was directly responsible for all corporate accounting and 

reporting of the distribution center’s inventory. He also worked with internal and external auditors 

concerning fiscal reporting of inventory. The inventory at this facility was specifically marked for 

retail stores and to fulfill customer orders placed over the phone and online. 

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with her about work obligations, there was always an IM from Friedman open. Ferguson 

and Friedman IMed each other throughout the day. 

97. RH’s Customer Service Lead Assist until April 2016 also explained that since 

at least 2012, RH provided escalation reports on the accommodations being provided to 

customers for issues with their orders, such as monetary compensation. The supervisor 

over Accommodations, Daniela Hartung, was responsible for such reporting. The weekly 

escalation report included the order number, type of problem and the accommodation. 

98. RH’s Customer Service Lead Assist until April 2016 further explained that 

“the rule was always if a customer escalated to [Friedman] and said ‘I’m going to the 

media,’ Gary was always like, ‘Do whatever you have to do, fix this, do whatever it takes, 

we don’t want them going to the media.’” She felt that Friedman was “absolutely” 

suppressing public knowledge of customer accommodations and the Modern issues. RH’s 

Customer Service Lead Assist until April 2016 stated that the IMs between Friedman and 

Ferguson, and Friedman’s concern about media attention, were occurring within a couple 

weeks of the Modern launch. Customers started asking about their orders, and Friedman 

would start IMing Ferguson to say they had a problem and that he needed her to talk to the 

customer and see if they could come up with an alternative. 

99. The escalation reports showed that RH customers were threatening to go to 

the press or sue RH. RH’s Customer Service Lead Assist until April 2016 further explained 

that prior to the RH Modern line, there would be a few hundred escalations weekly. Once 

the RH Modern line hit its peak and the Company started the “delight the customer” 

initiative in January 2016 (see ¶¶103-14 below), they were dealing with thousands of 

escalations a week. The report, she further explained, was in an Excel spreadsheet and 

went to Friedman every week. 

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100. RH’s Customer Service Lead until June 2016 explained that in 2015, 

Friedman reviewed the audio of telephone interactions between customers and RH 

customer service and listened to how employees were speaking to customers.29 

101. Friedman’s review of RH Modern escalation reports led him to send to 

employees his January 2016 “WE HAVE LET CUSTOMERS DIE” memo regarding his 

knowledge of customer complaints, cancellations, and accommodations due to the RH 

Modern launch. See ¶¶103-14 below. 

102. RH’s Customer Service Lead Assist until April 2016 explained that around 

the time that the “delight the customer” initiative began, Friedman was also receiving 

customer complaints on his personal cell phone, at home, and via email. Friedman received 

calls directly at home and on his cell from customers asking where their furniture was. 

Friedman would send all of those calls to Karen Ferguson in corporate escalations. 

6. Friedman Resorted To The Costly 

“Delight The Customer” Initiative 

103. In response to overwhelming complaints and cancellation requests soon after 

the launch of RH Modern (e.g., ¶¶51-55), Friedman personally initiated task forces to 

address such issues as well as a “delight the customer” initiative. 

104. RH’s Customer Service Lead Assist until April 2016 explained that the RH 

Modern task forces at corporate began in January 2016 or at the end of December 2015 as 

the situation worsened. She stated that employees had lists from the CW system that 

showed everyone who called wanting to cancel their orders, and that there were about 2,000 

orders that customers wanted to cancel because they had been waiting months. RH moved 

specific employees from the different departments at the call center to corporate office to 

work on task forces to deal with these issues. These employees would call the vendors to 

 

29 RH’s Customer Service Lead until June 2016 worked at RH for numerous years until June 2016. 

As a Lead, she was responsible for interacting with the customer and handling escalations. The 

Customer Service department was responsible for preparing regular reports on the number of 

customer complaints that the Call Center received. These reports were sent to management. If a 

Lead could not address a customer complaint, the caller would be routed to the corporate office. 

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tell them that they needed the vendor to make one quality item and ship it to RH overnight 

so that RH received it by Friday. The costs associated with these requests became 

astronomical. 

105. RH’s Manager in Operations throughout the Class Period similarly 

confirmed that employees were pulled from their day-to-day jobs to manage customer 

orders. RH’s Manager of Financial Planning and Analysis throughout the Class Period 

similarly stated that customers were primarily cancelling orders because of the huge 

backlogs. The products were back ordered, and they were told the product would not ship 

for months. Then they would call and be told that it was delayed for another number of 

weeks. 

106. Defendant Friedman sent a memo to all RH employees in January 2016 

stating that RH’s customers were “ON FIRE” and that “WE HAVE LET CUSTOMERS 

DIE” because customers were so unhappy, and that the job of RH employees was to 

“delight” the customer. As RH’s Customer Service Lead Assist until April 2016 explained, 

this “delight the customer” initiative was intended for RH Modern customers. RH’s 

Associate Store Leader from May 2013 to April 2016 similarly stated that the “delight the 

customer” initiative grew out of the disaster of the RH Modern launch. RH’s Manager in 

Operations throughout the Class Period confirmed that customers were cancelling orders 

because of the delays with the RH Modern collection, and these cancellations were what 

prompted Friedman’s January 2016 memo. RH’s Product Development Leader in Dining 

Furniture until September 2016 confirmed that “definitely a lot” of customers were 

cancelling orders due to shipping delays, prompting the “delight the customer” initiative. 

RH’s Senior Vice President of Product Development and Design from October 2015 to 

June 2016 similarly noted that customer cancellations were the reason that Friedman sent 

the first “delight the customer” memo. 

107. Friedman’s “delight the customer” initiative made clear to employees that 

they were authorized to spend unlimited amounts of money attempting to “delight” 

customers. As RH’s Client Services Advocate from June 2015 to December 2016 

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explained, the memo instructed employees to do whatever was necessary to delight the 

customer; anything went. Employees would give customers whatever they wanted; for 

example, a sofa, a table, a gift card, etc. RH’s Senior Project Lead for Quality and 

Innovation from April 2015 to June 2016 stated that almost immediately after the memo 

was distributed, the Company started incurring substantial costs. RH’s Client Services 

Advocate from June 2015 to December 2016 agreed that RH started providing customer 

accommodations immediately after the memo went out and the Company immediately 

started incurring costs. RH’s Customer Service Lead until June 2016 also stated that in the 

past, she or management would have to approve customer accommodations, but RH gave 

the authorization to everyone. She stated, “It was way out of hand. It was out of control. 

The galleries alone were giving away tens of thousands of dollars’ worth of furniture.” 

108. Under the “delight the customer initiative,” Friedman gave authority to any 

hourly employee in a store, carte blanche, to do whatever they wanted to satisfy the 

customers. Employees could give customers $10,000 gift cards or make their whole order 

free. The later charge RH took for customer accommodations (i.e., $18 million in the first 

quarter of fiscal 2016) was a result of this. RH was also air shipping furniture at a cost of 

thousands of dollars. Friedman sent Company-wide memos every week for about two 

months. 

109. RH’s Manager in Operations throughout the Class Period explained that in 

the “delight the customer” initiative, top priority was given to anything celebrity related, 

such as Steph Curry’s outdoor order, or Jennifer Lopez’s pillow replacement. Those would 

go to the front of the line. She also explained how, due to the initiative, if an unhappy 

customer needed something produced and the fabric was not available at the necessary 

factory in Mexico, RH would overnight the available fabric from China where it was 

supposed to be used for another item there. This was happening daily, on a customer-bycustomer basis, and imposing significant costs. RH’s Customer Service Lead Assist until 

April 2016 similarly explained that employees were giving thousands and thousands of 

dollars away daily, and recalled one instance in which a customer received a $10,000 order 

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for free. RH’s Customer Service Lead until June 2016 explained that galleries were giving 

away $10,000 and $20,000 orders. RH’s Product Development Leader in Dining Furniture 

until September 2016 stated that RH ended up furnishing customers’ homes because they 

had received the wrong kitchen table. 

110. RH’s Customer Service Lead Assist until April 2016 recounted how the 

Accommodations Supervisor checked the “delight the customer” numbers every day while 

RH’s Customer Service Lead Assist until April 2016 was there. RH’s Customer Service 

Lead Assist until April 2016 further stated that after RH Modern launched, the financial 

guidance the Company gave the market was misleading because of the extensive 

accommodations RH was making on the RH Modern line. She stated that this was a 

common topic of conversation at the Company, and that she believes investors were 

deceived. 

111. Friedman sent out weekly “delight the customer” emails, and held weekly 8-

hour conference calls, as part of his initiative and beginning with his January 2016 “WE 

HAVE LET CUSTOMERS DIE” memo. As RH’s Associate Store Leader from May 2013 

to April 2016 explained, the conference calls involved the whole Company (including the 

store managers, the leaders, and all of corporate). She stated that on the calls, Friedman 

would refer to the issues with the vendors, say that they were working on the issues, and 

that it was not going to get better anytime soon. RH’s Inventory Control Manager from 

2013 to June 2016 similarly recalled that Friedman’s initial “delight the customer” memo 

was distributed to everyone in the Company and Friedman sent out an update email weekly. 

RH’s Logistics Support in Supply Chain from April 2015 to January 2017 also stated that 

every Monday during the “customer delight” initiative, there were large, Company-wide 

conference calls in which Friedman participated. 

112. Reproduced here below is a portion of one of Defendant Friedman’s periodic 

“delight the customer” internal emails that followed the initial “WE HAVE LET 

CUSTOMERS DIE” memo. In it, Friedman states that “improv[ing] in-stocks and 

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reduc[ing] back orders” was the first priority, as “a significant amount of our issues are the 

result of not being in stock, and having orders pushed out multiple times.” 

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113. RH ceased the “delight the customer” initiative in approximately April 2016. 

RH’s Client Services Advocate from June 2015 to December 2016 stated that RH pulled 

back on the initiative in mid-April so that employees then had to get approvals again. She 

stated that the initiative was not correcting the problem; it was merely giving money to 

customers. 

114. RH’s Chief Operating Officer Ken Dunaj left the Company in relation to the 

RH Modern launch in February 2016. Defendant Friedman, however, omitted this fact 

when discussing the departure in the Company’s February 12, 2016 announcement of 

Dunaj’s departure. Similarly, on May 10, 2016, Defendants announced that three RH 

executives had been promoted to the newly-created position of “Co-President.” As RH’s 

Workforce Management Real-Time Analyst until November 2016 explained, following the 

“delight the customer” initiative, the Company basically replaced Friedman in terms of 

decision-making; though Friedman was still CEO, three Co-Presidents made decisions 

from then on.30 

C. Defendants Promoted The Launch 

Of RH Modern And Inventory Levels 

115. On the first day of the Class Period, March 26, 2015, Defendants promoted 

the launch of the new RH Modern business to investors in a press release, investor video, 

and investor conference call. Defendants did not refer to RH Modern specifically by name, 

but instead stated that RH would launch two new businesses in the Fall, and the business 

later revealed to be “RH Modern” was “core to RH” and would open up an “entirely new 

market[]” for the Company as it was “significantly incremental to what we’re doing today.” 

Friedman stated that it was a “game-changer” and “represents our finest work ever, and 

might represent one of the biggest market potentials that we’ve addressed with a new 

category, a new business.” 

 

30 RH’s Workforce Management Real-Time Analyst until November 2016 worked at RH starting 

in 2014. He was responsible for monitoring the 400 advocates taking orders from customers. 

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116. Following the announcement, analysts asked about the Company’s inventory 

management and supply chain. In response to a question from analyst Oliver Chen from 

Cowen and Company asking Defendants about “the inventory needs over the next year,” 

how the “supply chain . . . intersect[s] with the customer experience,” and how investors 

should “think about the magnitude of cash outflows” for inventory purchases, Defendant 

Boone reassured investors that the Company was making inventory investments so that 

there would not be “high back orders” and claimed the Company would “grow inventory 

slightly ahead of sales” given the RH Modern product launch, i.e., the “newness.” Boone 

responded that “the business does require a night-in-stock position . . . [s]o we will continue 

to make inventory investments to make sure that we . . . improve our in-stocks and make 

sure we’re not having high back orders.” 

117. Also in response to Chen’s question regarding the Company’s supply chain, 

Friedman emphasized the Company’s bias “to have more control [rather] than less control 

and to have more control of every aspect of [its] business all the way to the customer,” and 

stressed the importance of “enhanc[ing] the customer experience through improved 

inventory accuracy and scheduling efficiency.” When asked by Chen specifically “Where 

are you with lead times roughly,” Friedman responded that the Company was 

“systematically placing orders now,” which “should help us with lead times [and] help us 

with inventory flow.” 

118. The Individual Defendants provided further reassurances regarding the 

Company’s inventory practices and the availability of products for consumers. In prepared 

remarks during an investor video published on March 26, 2015, Friedman stated that the 

Company had made “meaningful improvements in how [it] flow[s] and deploy[s] inventory 

. . . which should lead to improved fulfillment, lower back orders, reduced stops per 

delivery, lower returns and damages, an improved customer experience, and increased 

profitability.” Boone also emphasized on the call that the Company works to make sure 

that “all that product is available for the[ customers] to consume,” and stated that RH had 

“further evolved [its] product development and vendor collaboration processes” and “made 

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transformative changes on [its] supply chain.” Friedman stated that “Ken Dunaj, our Chief 

Operating Officer, has recently taken over inventory management. He has [been] a new 

leader in that area of the business. I think we have more intelligence, more energy and 

passion behind inventory management than ever in the history of our Company right now.” 

119. Defendant Friedman also previewed the next quarterly investor conference 

call, stating that “you will hear more about [RH Modern] on our next call,” and in the 

meantime assured investors that “[o]ver the years, we have demonstrated that we can test, 

scale, and roll out new ideas predictable and profitably. Much of our success is due to 

significant infrastructure investments we have made and the unique platform we have 

built.” 

120. Along with these reassurances about the Company’s ability to deliver 

inventory on the new business to customers, Friedman stated that RH’s growth for 2016 

was based in part on the “two new yet to be disclosed businesses opening in the second 

half of this year,” and that for those businesses, the Company was “on the more 

conservative size versus aggressive side in how we’re planning and forecasting those 

sales.” Friedman stressed that since the Company’s IPO, RH had “beat earnings by a 

significant amount each year,” had “materially beaten the earnings guidance that we’ve 

given you,” and “that’s how I’d think about this.” 

121. On March 27, 2015, RH filed a Form 10-K with the SEC that promoted the 

Company’s supply chain and ability to fulfill orders in a timely manner. The Form 10-K 

highlighted that RH had “improved [its] supply chain and fulfillment capabilities, and ha[d] 

built a scalable infrastructure with significant capacity to support [its] future growth.” The 

10-K also stated that RH’s “enhanced supply chain and fulfillment operations allow [it] to 

manage customer orders and distribute merchandise to stores and customers in an efficient 

and cost-effective manner.” The 10-K noted that “these upgrades ha[d] improved customer 

satisfaction by reducing delivery times, reducing damage to merchandise, and improving 

[the] customer’s overall buying experience.” In addition, whereas prior RH Forms 10-K 

had stated that the Company was “implementing new inventory management capabilities 

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to improve inventory productivity and service levels across [its] supply chain,” the Form 

10-K filed on March 27, 2015 indicated that those capabilities were now implemented, as 

they were now being “optimiz[ed] and enhanc[ed].” 

122. In a section titled “Product Development,” the 10-K discussed RH’s 

“proprietary product development platform,” by virtue of which the Company had 

“streamlined [its] product development organization and process to shorten product lead 

times[.]” The 10-K stated that “[a]s a result of [this] proprietary [platform], [the 

Company’s] typical product lead times are 3-9 months, which enhances [the Company’s] 

ability to introduce more new products with each collection.” 

123. Analysts responded to Defendants’ statements. On March 27, 2015, analysts 

at Wells Fargo stated that the “two new, yet unannounced product categories . . . should 

help drive a strong [second half] and set up 2016 well.” Similarly, a KeyBanc Capital 

Markets report dated March 26, 2015 stated that RH “management expects to announce 

two new product categories in the coming months (with the categories launching in [the 

second half of 2015]) . . . [and t]hese new product categories should help drive further 

comp growth and market share gains in the quarters and years ahead.” Analysts were also 

focused on Defendants’ assurances of supply chain and inventory investments. On March 

27, 2015, analysts from Deutsche Bank emphasized that “[o]ther key bull points 

include . . . better performance on inventory control and the announcement that this line 

item should be receiving more attention through systems investments.” That same day, a 

William Blair analyst report noted that “[m]anagement . . . expects inventory growth to 

exceed sales growth in 2015 . . . as RH continues to invest in assortment/category expansion 

and improved in-stocks.” 

124. On June 11, 2015, Defendants published on the Company’s website a “video 

presentation” for investors and analysts “introducing RH Modern.” During the video, 

Defendant Friedman stated that “[w]e are excited to unveil today what we believe is the 

most innovative and new concept in the world of home design, and represents our finest 

work to date,” and displayed a wide range of products, including lamps, couches, desks, 

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chairs and additional items. As described above (see ¶¶74-76 above), certain of these were 

not actual products from the line but unfinished “one-offs” that had been hastily 

constructed by hand shortly before the investor video, and the designs for the products had 

not yet been provided to RH’s vendors. 

125. Following the display of the RH Modern products, Friedman highlighted for 

investors the importance of the launch of RH Modern: 

RH Modern launches this fall with a 300-page source book, a dedicated 

website, and a significant retail presence, including a freestanding RH 

Modern store at our former gallery on Beverly Blvd in Los Angeles, the 

entire ground floor of our Flatiron gallery in New York City, plus entire floors 

of our next generation Design Galleries in Atlanta, and opening later this year 

in Chicago, Denver, Tampa and Austin. 

. . . . 

 Later this year, 20 of our largest existing stores will be designed to include 

2,000 to 3,000 square feet dedicated to RH Modern. In total, RH Modern 

will have over 120,000 square feet of selling space in its first year of 

operation. Looking forward, with RH Modern occupying up to 15,000 

square feet in our future next generation design galleries and the possibility 

for additional freestanding locations, RH Modern will have a retail footprint 

that grows by up to 100,000 square feet per year and will be a disruptive 

force in the highly fragmented modern market. 

126. Friedman stated that Defendants would “also support the launch of RH 

Modern with a national advertising campaign in the top design and luxury publications 

such as Architectural Digest, Elle Decor, Town & Country, and Wallpaper, as well as key 

online marketing, and opening events in Los Angeles, and New York.” Friedman 

emphasized that RH Modern “can create a significant and new market, much larger than at 

any time in history.” 

127. During the same video presentation and following Friedman’s presentation, 

Boone assured investors that RH was investing in inventory of RH Modern. Boone stated 

that “[i]nventory at the end of the first quarter was up 24%, and we expect to end the year 

with inventory growth that is higher than our sales growth, given the inventory 

investments in RH Modern and other newness that we will introduce this fall.” Defendant 

Boone highlighted the inventory growth with a slide during the presentation: 

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128. Also on June 11, 2015, following the video presentation, Defendants held an 

investor conference call. The first question on the call was from analyst Adam Sindler at 

Deutsche Bank, who asked whether RH’s manufacturers “have the capacity to handle” the 

RH Modern launch, and how the launch of RH Modern would affect the Company’s 

“balance sheet through inventory.” Friedman responded with a reassurance regarding the 

availability of RH Modern products from the manufacturers, noting that for RH Modern 

“most of Modern is scaling on our current vendor base with some new vendors added in 

some categories.” Boone also responded to the analyst’s question regarding inventory, 

stating that “because we have a lot of the newness and investment that are coming in the 

back half” of the year, “we will grow inventory ahead of sales at the end of Q4.” In 

response to a question from Neely Tamminga, an analyst from Piper Jaffray & Co., 

regarding “the elevation of inventory because of the newness,” Boone stated that “[i]t will 

grow a little bit in Q2 . . . and then we’ll make some additional investments in the Modern 

and other newness that we are having. It will grow a little bit more in Q2 then it will dip, 

and then it will grow a little bit more in Q4.” 

129. Also on the investor call, analyst Budd Bugatch from Raymond James 

inquired about the RH Modern “supply chain.” In response, Boone stated that “this 

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summer” the Company was opening 1.5 million square feet of distribution center space 

“planned partially for Modern” and “knowing that Modern was coming. So, we should be 

very good on supply chain capacity for a while.” Boone also mentioned that in negotiating 

payment terms with manufacturers, “most importantly, again, is making sure we have the 

product to get to the customer.” Analyst Matt Nemer from Wells Fargo Securities asked 

about “speed to delivery” for RH Modern products, asking “[h]ow do you think you’ll 

compete on speed?” Friedman responded that “[on] the Modern side, and the lead times, 

the wait times are a real disadvantage for the people in the marketplace today” but that 

“[w]e are going to compete on speed just like we would our current business” and RH 

would have “a huge competitive advantage versus how the marketplace exists and operates 

today.” 

130. Friedman stated that “we expect this to really open up the aperture of the 

brand to attract a lot of new customers and in many ways we expect RH Modern to create 

a new business in general,” and characterized RH Modern as an “incremental layer of 

business,” “a new market,” and “an entirely new business” that would create “incremental 

revenues and profitability” for RH. Friedman stated “could RH Modern, in and of itself, 

take $4 billion to $5 billion [of revenues] up? Yes, it could.” He added, “I am more excited 

about this than any new thing we’ve ever done and I would say our organization is, too.” 

131. Analysts took note of Defendants’ statements about RH Modern and 

inventory growth. A June 12, 2015 report by William Blair Equity Research highlighted 

that “[m]anagement said that it expects inventory growth to exceed sales growth in 2015, 

with the spread more pronounced by year-end due in part to the newly announced planned 

launch of the RH Modern collection and one yet-to-be-announced business.” A June 12, 

2015 report by Barrington Research similarly noted that “management expects inventory 

levels to grow by year end as a higher level is needed to support growth and its new 

concept/categories.” 

132. On June 15, 2015, RH announced its intention to offer up to $300 million in 

convertible notes “to provide . . . additional funding for expansion of its business and the 

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pursuit of additional growth opportunities.” On July 2, 2015, RH completed the sale of the 

$300 million in debt in a private placement transaction. 

133. On September 10, 2015, Defendants published a press release announcing 

the Company’s financial results for the second fiscal quarter of 2015 and raising guidance 

for the Company’s fiscal 2015 performance. Citing the Company’s “execution 

capabilities” and “the significant investments we are making to develop the many new 

businesses we have in the pipeline,” Friedman stated that “the launch of RH Modern and 

RH Teen late in the third quarter,” among other factors, “puts us on a clear path to accelerate 

our growth in the fourth quarter and into fiscal 2016.” Friedman also stated that the launch 

of RH Modern “gives us further confidence in our financial outlook for fiscal 2015,” and 

Defendants raised fiscal 2015 guidance as follows: EPS increased to $3.06 to $3.16, 

adjusted net income increased to $129.6 to $133.7 million, net revenues increased to $2.158 

to $2.178 billion, and adjusted operating margins increased to 10.5% to 10.7%. 

134. Also on September 10, 2015, Defendants published on the Company website 

a “video presentation” for investors and analysts. During the video, Defendant Friedman 

continued to promote RH Modern, stating that “it is the most comprehensive launch of a 

new business and brand in the history of our industry.” Defendant Boone stated that 

“[i]nventory at the end of the second quarter was up 29%” and highlighted how Defendants 

“expect to end the year with inventory growth that is higher than our sales growth given 

the inventory investments necessary for the launches of RH Modern and RH Teen.” 

Defendant Boone emphasized inventory growth with a slide during the video: 

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135. During an investor conference call later the same day, analyst Cristina 

Fernández from Telsey Advisory Group asked, regarding the Company’s reported 

inventory growth of 29% in for Q2 2015, “how much of that is related to Modern?” Boone 

responded that for Modern, “some of it’s on the water,” i.e., products had been ordered 

and were in transit, and that “we do expect inventory, as I mentioned on the video, to 

outpace revenue growth, just because we do need to make those investments in Modern . 

. . inventory.” 

136. During the call, analyst Matthew Fassler at Goldman Sachs asked about the 

Company’s “operation and execution.” Friedman responded that “I know it looks like we 

are going so much faster, and it’s true and we are,” but that at RH, “we test and prove and 

scale new businesses here on a regular basis every season and every year since we have 

been a public Company. We have hit our numbers every year and every quarter. We do 

what we tell you we are going to do.” 

137. Friedman dismissed the notion that the RH Modern launch was risky, stating 

“Now you’d say like well gosh, is that really risky? Well, I don’t know; I’d look at 

everything else we have done.” Friedman emphasized that RH Modern “is the most 

important new business we have launched in the history of this Company” and “the most 

important and significant new home furnishings business to be launched in the last 15 

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or 20 years.” He stated that RH could “go so fast” with the RH Modern launch because 

“we know this business,” explaining: “It is every category that we’re already in. It is every 

product line that we’re already in. We know the percent of the business that should be 

living room, dining room, bedroom, bathroom. We know how sizes sell versus other sizes. 

We know how finishes sell versus other finishes. We know the lighting business. We know 

the window treatment business. We know the rug business. We know the bedroom and 

bathroom textiles business.” 

138. Friedman also emphasized that RH had tested some of the demand for RH 

Modern products by marketing them in RH’s other product books, and RH was “extremely 

happy with the early reads. Extremely happy. And that’s maybe why” the Company 

decided to make the RH Modern Source Book 540 pages long instead of 300 pages long, 

as previously planned. Friedman also stated that RH Modern “can be as big as RH is today 

or bigger than we are today. There is no reason to believe that RH Modern can’t be a multibillion dollar business in the U.S.” 

139. Analysts took note of Defendants’ positive inventory statements. An October 

1, 2015 analyst report by Cristina Fernández and others at Telsey Advisory Group cited 

RH’s purported “better in-stock levels,” noting that “[i]nventory for RH Modern and RH 

Teen are largely in transit.” The analyst report further stated that “RH continues to expect 

inventory growth to outpace sales growth for the remainder of 2015, driven by the planned 

product launches.” Analysts at Barrington Research also noted in a September 11, 2015 

report that “[i]nventory increased 29% and management expects inventory growth to be 

above sales growth at year end. The higher inventory level is needed to support growth 

and the company’s new concepts and categories.” The Wall Street Journal published an 

article on September 10, 2015 titled “Restoration Hardware Raises Outlook,” which noted 

Friedman’s “prepared remarks” that “the launch of RH Modern,” among other factors, 

“provide[d] further confidence in [the Company’s] outlook for the current fiscal year.” 

140. The RH Modern launch took place on the Company’s website in September 

2015. On October 2, 2015, RH opened a retail store in Chicago, Illinois. According to the 

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Company’s press release, the Chicago gallery featured the first in-store presentation of RH 

Modern products for sale. RH Modern was presented in an 11,000-square-foot exhibition 

space located on the fourth level of the gallery. Defendant Friedman attended the ribboncutting ceremony, as well as the launch party the previous night. 

141. On October 12, 2015, Defendants published a press release entitled “RH 

Introduces RH Modern.” The press release stated that “RH announced today the unveiling 

of RH Modern” with a 540-page Source Book and website. The press release stated that 

RH Modern “debuts with a unique website and significant physical presence, including a 

dramatic, standalone RH Modern Gallery at the site of RH’s former gallery on Beverly 

Boulevard in Los Angeles, the entire ground floor of the Flatiron Gallery in New York, plus 

entire floors in the Company’s next generation Design Galleries in Chicago, Denver, 

Tampa and Austin.” 

142. On October 15, 2015, Defendant Friedman gave a speech at RH’s new retail 

store in Denver, Colorado. According to the Company’s press release, the Denver gallery 

featured a 15,000-square-foot exhibition space debuting RH Modern. During the speech, 

Friedman stated that “the platform we built . . . [is] very much underappreciated and 

overlooked,” and “gives us massive speed and leverage.” On November 6, 2015, RH 

opened its Modern Gallery on Beverly Boulevard in Los Angeles, which was a standalone 

RH Modern Gallery that offered RH Modern products for sale throughout the 21,000-

square-feet indoor-outdoor space. Defendant Friedman personally attended the ribboncutting ceremony. A week later, Defendant Friedman attended the opening of RH’s Tampa 

location, which also offered RH Modern products for sale. 

143. On November 16, 2015, the news publication Curbed published excerpts of 

an email interview with Defendant Friedman regarding RH Modern. In the interview, 

Friedman stated that in developing RH Modern, RH had “carefully curated renowned 

global designers and artisans to collaborate on RH Modern” and that “[d]espite the size 

and scope of the launch, trust me when I say we are just warming up.” 

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D. RH Revealed The Truth About RH Modern 

Through Partial Disclosures While Continuing 

To Misrepresent The Launch And Inventory Issues 

144. On December 10, 2015, Defendants disclosed quarterly revenue at the lower 

end of guidance, which Defendants attributed to the late release of the RH Modern Source 

Book. Defendants also disclosed that “the in-stock position is not great today” on RH 

Modern, and that “it’s not that we were in [stock] and then we were out [of stock], it’s 

really just a build of getting some of those most initial products” in the RH Modern line. 

Defendants also blamed their disappointing financial results on “various external macro 

factors outside our control, including deteriorating trends in regions impacted by currency 

and oil prices.” 

145. In response to the partial disclosures, the price of RH stock dropped over 

10% on high volume, erasing over $361 million in shareholder value, over the next two 

trading days. 

146. Defendants reassured investors, however, about the success of the RH 

Modern launch and the Company’s financial position, omitting the true facts surrounding 

RH inventory. During the quarterly video presentation that Defendants published on 

December 10, they omitted any mention of the severe RH Modern in-stock problems and 

overwhelming customer complaints, instead stating that “inventory at the end of the third 

quarter was up 25% year-over-year. And we continue to expect to end the year with 

inventory growth higher than our sales growth given the inventory investments in RH 

Modern and RH Teen.” Defendant Boone also presented the following slide during the 

video presentation: 

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147. Purporting to “update [investors] on [RH’s] recent progress,” Defendant 

Friedman stated during the video that “RH Modern was launched with a 540-page source 

book, its own dedicated website, a significant retail presence inside our Next Generation 

galleries, plus a free-standing gallery on Beverly Boulevard in Los Angeles.” Highlighting 

the purported success of the RH Modern launch, Friedman stated that “the trends are very 

encouraging. In the retail locations where RH Modern is now featured, we have early data 

that RH Modern is adding more than 40 points of incremental volume. In Los Angeles 

where we opened our first free-standing location, RH Modern is trending to add over 60 

points of incremental volume with a $25 million annual run rate, while our Melrose gallery 

continues to comp positive only a few blocks away.” 

148. During the investor conference call later that day, Boone again reassured 

investors regarding inventory, stating that “we have been talking about the cadence of 

inventory for the year, and really, nothing’s changed. We continue to expect to have yearover-year inventory growth ahead of sales growth in Q4, mostly because of the cadence of 

newness.” Boone further stated that “[t]he investments we have made in our supply chain 

and systems infrastructure will enable us to continue to improve our customer experience 

and support our long term growth.” In a Form 10-Q filed with the SEC on December 10, 

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2015, Defendants similarly stated that there had been “increases in inventory of $201.7 

million related to the increase in 2015 Spring, RH Teen and RH Modern collections.” 

149. When, during the December 10, 2015, investor conference call, an analyst 

asked whether “out of stocks in Modern” would be “a gating factor to the early success of 

Modern,” Friedman reassured investors that “[w]e’ve got a lot of new product” and “in 

stocks are going to improve every week.” Friedman characterized the RH Modern issue 

as one of high demand for certain products while omitting material facts about the nearcomplete lack of inventory, stating that “the best sellers in a new business are always going 

to sell out, and you’re going to always have to respond and catch up with those” and 

highlighting that “the demand is outstanding.” Without mentioning the overwhelming 

customer complaints and cancellations, Friedman stated that “[t]he early data would tell us 

that [RH Modern is] opening up an entirely new market, it’s bringing in new customers, 

and it’s accretive to our current core customers.” Friedman reassured investors yet again 

that the “headline” was that RH Modern was “performing ahead of our expectations.” 

150. On December 10, 2015, 40 days into the quarter, and two months since the 

launch of RH Modern, Defendants raised guidance for net revenues in the current (fourth) 

quarter ending January 31, 2016. With just seven weeks remaining in RH’s fiscal year, 

Defendants also raised guidance for fiscal year 2015 net income, net revenues, and adjusted 

diluted EPS. 

151. During the quarterly investor conference call held that day, analysts asked 

“what’s given you the confidence in Q4 to increase your revenue guidance range, even 

despite all the factors you named, like the oil and the later Source Book?” Friedman 

responded that “[a]s of today we are ahead of Q4. That’s why.” In other words, Friedman 

represented that as of December 10, 2015, RH had revenue of more than $708 million in 

the fourth quarter of fiscal 2015. Friedman also stated during the call that “we have a lot 

of data that we’re looking at” and “I feel more confident than ever before.” When asked 

about how the purported adverse macro trends Defendants noted were playing out in the 

fourth quarter, Defendants indicated that such issues were accounted for in the Company’s 

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guidance, stating that “[i]t’s about basically the same as it dragged in the third quarter” and 

“[w]e have a good read so far how we’re trending versus the third quarter, so far, four or 

five weeks in.” 

152. Investors and analysts reacted to the news. A December 11, 2015 analyst 

report by Cowen and Company highlighted that RH management “expects inventory to 

continue to outpace sales growth for the remainder of [2015] to support the investment 

in Modern, Teen, and new gallery openings.” On December 10, 2015, analysts at KeyBanc 

Capital Markets noted that “[r]esults were hurt by a later launch of Modern.” On December 

11, 2015, analysts at William Blair Equity Research also reported that “[m]anagement 

indicated that the revenue shortfall reflected delayed mailing of sourcebooks containing 

the new RH Modern . . . line[].” 

153. On December 15, 2015, Defendant Friedman appeared for an interview on 

the financial news program “Mad Money,” hosted by Jim Cramer. During the interview, 

Friedman stated, without disclosure of the ongoing customer cancellations and lack of RH 

Modern inventory, that “we’re more confident than ever about the long-term strategy” of 

RH because, among other things, “we just launched what is the most exciting business I’ve 

been associated with in my career: RH Modern.” 

154. In January 2016, however, Friedman distributed internally his frantic, allcaps memorandum – “NO ONE WAS FOCUSED ON THE PEOPLE IN THE BUILDING 

WHO WERE ON FIRE. THEIR CLOTHES BURNING, AND MANY OF THEM 

DYING. WE HAVE LET CUSTOMERS DIE.” See also ¶¶99, 101-14 above. 

155. On February 24, 2016, Defendants published a press release containing a 

letter from Defendant Friedman disclosing preliminary fourth quarter and fiscal 2015 

results. The disastrous results for the fourth quarter ending January 31, 2016 included 

adjusted diluted EPS of $0.99 and adjusted net income of only $41.8 million – figures that 

were each nearly 30% below the lower end of the range that Defendants had set in 

December 2015, six weeks into the quarter. The quarterly EPS and adjusted net income 

figures were also each below the Company’s results for the fourth quarter of the prior year,

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fiscal 2014. Despite Friedman’s representation in December 2015 that RH’s then-revenue 

was already ahead of $708 million (¶151), the Company announced net revenues of $708 

million for the entire fourth quarter, as well as results for the 2015 fiscal year that were 

substantially below the range in each major financial category: net revenues, adjusted net 

income, adjusted diluted EPS, and adjusted operating margins. 

156. In his February 24, 2016 letter, Defendant Friedman disclosed that “there is 

certainly a fair amount of bad news in the quarter” and a “key factor” having a “negative 

effect on our fourth quarter results” was that “[w]hile the initial response to RH Modern 

has been outstanding, we are experiencing shipping delays as certain vendors are struggling 

to ramp up production of this new product line.” Friedman further disclosed that “the poor 

in-stocks . . . suppressed orders” and “we do not plan to introduce any incremental new 

businesses in fiscal 2016, as we believe launching into a potential headwind creates 

asymmetrical risk to the downside.” He also stated that “RH Modern revenues [are] being 

affected in the first half by the production issues mentioned earlier” and “[o]ur energies 

in the first half [of 2016] will be focused on ramping production and improving in-stocks 

for RH Modern.” Friedman also blamed “macro economic challenges” for RH’s 

performance, citing the purported impact of “energy, oil, or currency fluctuations” on 

certain markets for RH products and stating that “we are clearly operating in different 

market conditions than a year ago.” Defendants also blamed the stock market for RH’s 

performance, stating that “increased volatility in the U.S. stock markets” hurt sales. 

157. Analysts and journalists reacted to the news, calling into question 

Defendants’ credibility. Analysts at the Buckingham Research Group stated in a 

February 25, 2016 report that the Company’s results were “well below already low 

expectations” and that “management’s credibility has been damaged in light of the major 

4Q miss and there are several ‘red flags’ we have identified . . . .” The report also cited 

“[m]ajor execution errors around RH Modern implementation,” which “call[] into question 

the company’s operational, strategical and planning capabilities.” A February 25, 2016 

article on the financial news website The Motley Fool stated that “management has plenty 

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of work ahead in regaining investor confidence” and a February 24, 2016 article on the 

financial news website iBankCoin similarly noted that Defendants had revealed “offensive 

execution” as “a supply chain is the heart of retail.” “Acceptable excuses: 0.” 

158. A February 29, 2016 article on the financial news website Seeking Alpha 

similarly concluded that “[i]nvestors should not buy management’s unconvincing 

explanations.” The article explained that in his December 10, 2015 RH statements, 

Friedman “insisted on being ahead of Q4 plan so far at that point.” Given the true Q4 2015 

results, however, the article noted that “management already lined out a couple of red flags 

on the Q3 conference call and still decided to take up Q4 guidance only to fail miserably 

just a few weeks later.” 

159. Numerous additional analysts and journalists noted the shocking financial 

results and management’s reduced credibility. USA Today reported on February 24, 2016 

that “investors were stunned” by the news as “Restoration Hardware is falling apart.” A 

Fortune article the same day noted that the Company’s shares were falling heavily on the 

news as “[t]he company’s charismatic CEO Gary Friedman blamed everything from the 

oil bust to the crazy stock market for the high end furniture retailer’s shortfall.” 

160. In reports dated February 24 and February 25, 2016, analysts at KeyBanc 

Capital Markets downgraded RH’s stock and highlighted the “disruption in RH Modern 

inventory procurement,” and analysts at Piper Jaffray explained how RH had “[c]it[ed] 

shipping delays in its RH Modern product” while reporting results that were “well below 

guidance and expectations.” A February 25, 2016 article in Business Insider stated that in 

reporting its financial results, RH was “break[ing] out every excuse in the book” and that 

Friedman was continuing to provide “encouragement to shareholders.” News articles on 

February 26 and February 29, 2016 noted the “disastrous preliminary earnings report.” 

161. Defendants’ statements about factors such as stock market volatility, and 

energy, oil, and currency fluctuations, such as those identified in paragraphs 144, 156, 197, 

and 199, were false and misleading. RH’s Manager of Financial Planning and Analysis 

throughout the Class Period, for instance, stated that Defendants’ blaming the earnings 

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decrease on energy, oil, and currency fluctuations was “not true.” He explained that “the 

truth of the matter is it was because of the Modern business and how it was poorly 

executed”; that the Company did not have enough inventory to ship out to meet all of the 

demand for Modern; and that because RH did not have inventory, the fourth quarter results 

suffered. “It is just amazing what you can tell the public,” he said. RH’s Buyer from 2014 

to 2016 similarly stated that it was “absolutely” not true that the Company’s weak earnings 

were due to energy, oil, and currency fluctuations. Rather, it was all about not being able 

to deliver product to customers on time. When RH Modern launched, customers were 

looking at delivery dates of April 2016, and “that’s just ridiculous.” He explained that RH 

put resources into its new brand and then was not able to reap the benefits; that is what 

caused the financial deficit, not oil prices. RH’s Senior Vice President of Product 

Development and Design from October 2015 to June 2016 stated that the weak earnings 

were due to the supply and delivery of merchandise that specifically related to the Modern 

line and that affected sales. RH’s Product Development Leader in Dining Furniture until 

September 2016 stated that the Company’s earnings decrease was related to the launch of 

RH Modern. According to RH’s Creative Associate in Design and Planning from 2013 to 

February 2016, RH’s earnings suffered due to last-minute decision-making and then having 

to communicate those last minute decisions to factories in China. 

162. Reports by RH analysts revealed how RH’s partial disclosure on 

February 24, 2016 continued to mislead the market by giving the impression that the RH 

Modern difficulties were due to “vendor struggles” as opposed to the Company’s failure to 

place timely orders for inventory. A February 24, 2016 report by analysts at Evercore ISI 

stated that RH’s sales suffered from “poor in-stocks as vendors struggled to ramp up the 

new RH Modern line.” In a report dated February 24, 2016, CRT Capital Group LLC 

similarly repeated that “[w]ritten orders were up 21% in 4Q on top of 26% [last year], 

however delivered revenue increased just 11% in the quarter versus 24% 4Q14. RH blamed 

this shortfall in delivered revenue on shipping delays related to vendor production of the 

new [] RH Modern line.” 

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163. In response to the partial disclosures, the price of RH stock declined. On 

February 25, 2016, the share price fell over 25% to close at $38.49, erasing over $543 

million in shareholder value on the highest trading volume ever recorded in a single day 

for RH stock. As Bloomberg reported, this was the “biggest single-day drop [in Company 

share price] since the retailer held its initial public offering in 2012.” 

164. On February 25, 2016, Bloomberg published an article titled “Delight the 

Customer or Lose Your Job: Restoration Hardware CEO Sends Scorching Memo.” The 

article published excerpts of the memo written by Defendant Friedman to RH employees 

in response to mounting customer complaints and high order-cancellation rates. See ¶¶51-

53, 103-14 above. The next day, Fortune and The Washington Post picked up the story 

and noted that Friedman likely had reason to send the memo, as the Company had reported 

on February 24, 2016 – just a day before the Bloomberg article first reported on it – that 

“its fourth quarter sales and earnings were well below forecasts[.]” 

165. Unbeknownst to investors at the time, the “Delight the Customer or Lose 

Your Job” memo was over a month old at the time of publication, was the result of severe 

inventory shortages of RH Modern products, and Friedman followed up the memo with 

weekly conference calls and further memos as part of the costly “delight the customer” 

initiative. See ¶¶103-14 above. 

166. On March 17, 2016, analysts at BB&T Capital Markets disclosed the results 

of a survey they conducted on the availability of RH Modern products. The survey 

“revealed [that] widespread supply chain issues continued into Q1’16 and are even worse 

than we feared,” putting “the burden of proof on senior management to demonstrate the 

wheels have not completely fallen off.” The survey analyzed the availability of “50 RH 

Modern products, including large furniture, home furnishings, and decorative items, in 

order to gauge how many are currently in or out of stock.” It found that “58% of the items 

are currently out of stock, with RH on average promising to contact customers to schedule 

a delivery—not actually deliver the product—in 63 days. In one case RH currently does 

not promise to contact customers to schedule a delivery until early December.” BB&T 

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downgraded RH’s stock and summarized its findings: “To be blunt, we find it shocking 

over half of RH Modern products are currently not in stock and will take over two 

months on average before customers are even contacted about scheduling deliveries.” 

The analysts further concluded that they were “troubled” that RH management had not 

“ensure[d] its supply chain was adequately prepared given its repeated bullish comments 

on the concept’s potential.” 

167. Journalists at CNBC reiterated the “shocking” findings of product delays and 

noted that the findings “call[ed] into question just how severe an impact the retailer’s 

chronic out-of-stock conditions” would have on the Company’s financial performance 

despite Friedman’s statements “assur[ing] investors that the majority of Restoration 

Hardware’s written orders would translate into revenue during the first and second quarters, 

and that its vendors would be ‘substantially caught up’ by the end of the first half.” The 

Buckingham Research Group issued an analyst report on March 18, 2016, in which it 

downgraded the Company’s stock to “underperform” and reported that “the worst of 

[RH’s] supply chain issues may still be ahead of us.” 

168. In response to the partial disclosures regarding RH Modern, the price of RH 

stock declined. On March 17, 2016, the share price dropped 5.66% to close at $36.65 per 

share on high volume, erasing over $89 million in shareholder value. 

169. On March 29, 2016, RH Modern reported its final financial results for the 

fourth quarter of 2015 and fiscal 2015. Defendants also released a video presentation for 

investors. During the presentation, Defendants continued to characterize the RH Modern 

shipping delays as an issue of “certain vendors . . . are struggling to ramp up production.” 

Defendants assured investors that RH Modern “can quickly become a billion-dollar-plus 

brand” and that RH was “ramping production and improving in-stocks for RH Modern.” 

Defendants stated that “[r]evenue growth in the front half of fiscal 2016 will be driven by 

. . . RH Modern as the 2015 orders turn into delivered revenue; as well as stronger overall 

Modern demand as our in-stock levels improve.” 

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170. Also on March 29, 2016, Defendants stated that RH was “investing 

approximately $8 million to $10 million during the first quarter due to higher cancellation 

rates, shipping delays, and our overall initiative to elevate the customer experience.” While 

RH characterized the costs euphemistically as an “investment,” it amounted to an expense 

of “$0.12 to $0.15 per share” for the first quarter. The Company stated that “customer 

accommodations due to RH Modern production delays” were expected to reduce the 

Company’s adjusted diluted EPS in fiscal 2016 by $0.22. Regarding RH Modern, 

Defendant Friedman stated that “we’re on the back side of the mountain, if you will. . . . I 

think we’re past the peak. The in stocks in Modern are going up.” Friedman stated that 

“we’ve now got our arms around it” and “we have our arms around what we think the costs 

will be.” 

171. RH also held a quarterly investor conference call on March 29, 2016. The 

first question during the call, from Matthew Fassler at Goldman Sachs, asked about the 

Company’s first quarter guidance. In response, Friedman stated that RH’s guidance was 

“rightly conservative.” When Fassler inquired about the “cadence of the business as 

[Friedman] saw it play out through the quarter and perhaps into Q1,” Friedman responded 

that on RH Modern, “[w]e’re currently in the 70% range as far as our in-stocks today, and 

we expect that to build to the mid-80%s by the end of the quarter which is more at a 

normalized level.” Friedman also reiterated later in the call that “[t]he in-stocks in Modern 

are going up.” 

172. Analysts and journalists responded to Defendants’ statements. A March 29, 

2016 report by analysts at Morningstar Equity Research stated that RH’s lack of RH 

Modern inventory was due to “the lack of insight RH had to the demand for Modern and 

the effectiveness of its supply chain.” The report further cited Defendants’ statement that 

the Company expense in support of “the customer experience” would cost approximately 

“$0.12-$0.15 in EPS for the first quarter.” Numerous analyst reports also noted the 

Company’s purported in-stock rates on RH Modern. On March 30, 2016, a report by 

analysts at BB&T Capital Markets cited Defendant Friedman’s statement about the level 

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of RH Modern in-stocks, stating that “[m]anagement noted only ~70% of RH Modern 

inventory is currently in stock.” A March 30, 2016 report by Cowen and Company 

similarly noted RH’s purported “~70%” in-stock position for RH Modern. A March 30, 

2016 analyst report by Deutsche Bank similarly noted RH Modern in-stock levels in “the 

70% range today and expected to build to the mid 80% range by the end of 1Q versus 

historical in-stock in the low 90% range.” A March 30, 2016 analyst report by UBS 

similarly noted that RH Modern’s “current in-stock rate is in the 70% range and should 

climb to mid-80% by the end of 2Q.” 

173. On June 8, 2016, the Company made further disclosures regarding RH 

Modern and announced disappointing financial results for the first quarter of fiscal 2016. 

The Company disclosed that instead of spending $8 million to $10 million to “elevate the 

customer experience” in the quarter ending April 30, 2016 – a figure the Company had 

provided to investors two-thirds of the way through the quarter – RH had spent $18 million

on such “customer accommodations and related expenses, largely as a result of RH Modern 

production delays.” And while the Company had provided guidance of net income in the 

range of $1.6 million to $2.5 million and earnings between $0.04 and $0.06 per share for 

the quarter, the Company reported a net loss of $2.1 million and a loss of $0.05 per share. 

Based on the “RH Modern production delays,” the Company also reduced its guidance for 

the full fiscal 2016 year. 

174. In a quarterly video presentation to investors published on June 8, 2016, 

Defendants blamed the poor performance on, among other things, “the launch of RH 

Modern,” which “has suffered difficulties ramping production.” Defendants also disclosed 

that they were taking a “more aggressive approach to rationalizing our SKU count and 

optimizing inventory,” which would reduce the Company’s financial performance 

substantially. The June 2016 statements about rationalizing the SKU count and optimizing 

inventory referred to liquidating unnecessary or excess inventory from RH’s product lines 

other than RH Modern, as “there was a ton of product in the warehouse that wasn’t selling 

or moving.” See ¶64 above. Defendants revealed that the Company had “extra inventory” 

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that was “bloating [the] balance sheet,” as well as “overstock” in the non-RH Modern 

categories “across the board.” Defendants further disclosed that RH had decided to use 

“clearance events” and open more outlet stores “to support [thei]r more aggressive stance 

in rationalizing our SKU base and reducing our inventories.” 

175. Analysts and journalists reacted to the news. On June 9, 2016, BB&T Capital 

Markets published a report stating that “the last two quarters’ debacles cast significant 

doubt on management’s credibility” and that “we are still flabbergasted by how quickly 

the wheels appear to be falling off RH.” Also on June 9, 2016, analysts at Cowen and 

Company reported that RH’s first quarter results “misse[d] expectations as greater than 

expected modern in-stocks led to higher than anticipated customer accommodations,” 

and analysts at Oppenheimer similarly noted that “[i]nvestments to elevate the customer 

experience associated with the RH Modern rollout continue to weigh on profitability, 

detracting $0.34 from EPS.” The Oppenheimer report noted that the Company’s results 

were “much weaker than expected” as “EPS f[ell] meaningfully short of expectations” and 

“below management guidance.” The next day, MarketWatch reported that “[a]nalysts 

didn’t hold back in their assessments of the issues facing [RH], with concerns expressed 

about everything from transaction times to management’s credibility” along with 

“concerns the wheels may be falling off.” MarketWatch also noted how “BB&T Capital 

Markets analysts . . . believe the credibility of those running Restoration Hardware should 

be called into question.” 

176. The price of RH’s stock declined in response to Defendants’ disclosures. On 

June 9, 2016, the share price plunged over 21% on the highest trading volume in the 

Company’s history since its IPO. The share price dropped another 6.5% the next day, again 

on high trading volume. The two-day drop erased over $386 million in shareholder value. 

177. An article on the financial news website The Motley Fool following the close 

of the Class Period commented on some of Defendants’ misstatements during the Class 

Period. The article noted that RH’s “earnings reports have been filled with dubious excuses 

and self-inflicted errors” and that “CEO Gary Friedman has stretched the limits of 

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credulity with many of his statements over the past year.” The article stated that despite 

Friedman’s statements on February 24, 2016 that the Company’s earnings were affected 

by “underperformance in markets affected by energy, oil, or currency fluctuations,” an 

independent analysis “dispel[s] any notion that low oil or stock prices pressured RH’s 

results,” showing that “[t]he lesson for investors” was that “[a]lmost all of Restoration 

Hardware’s attempts to blame results on the macroeconomic environment have been 

proven false.” The article concluded: “One thing is clear. Friedman’s credibility has been 

severely damaged by this year’s unforced errors and weak excuses.” 

V. DEFENDANTS’ FALSE AND 

MISLEADING STATEMENTS AND OMISSIONS 

178. On March 26, 2015, Friedman, Boone and RH’s Vice President of Investor 

Relations and Strategy, Cammeron McLaughlin, participated in the investor conference 

call that followed Defendants’ press release and investor video. After the announcement 

of the new product line, analyst Oliver Chen from Cowen and Company asked during the 

call Defendants about “the inventory needs over the next year,” how the “supply chain . . . 

intersect[s] with the customer experience,” and how investors should “think about the 

magnitude of cash outflows” for inventory purchases. Defendant Boone represented that 

“the business does require a night-in-stock position . . . [s]o we will continue to make 

inventory investments to make sure that . . . [we] improve our in-stocks and make sure 

we’re not having high back orders.” When Chen asked Defendant Friedman “[w]here are 

you with lead times roughly,” Friedman responded that the Company was “making more 

meaningful investments, system investments on both sides, with our vendors and internally 

here,” which “should help us with lead times, help us with inventory flow, the way we’re 

systematically placing orders now.” 

179. Defendants’ statements in the investor conference call, identified above in 

¶178, were false and misleading. Defendants were not systematically placing orders for 

RH Modern product and were not “continuing” to make “required” inventory investments 

on RH Modern. Defendants had not ordered the required inventory, or any substantial 

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amount of RH Modern inventory. See ¶¶32-38; see also ¶¶39-50. Defendants also omitted 

that, at the time, RH’s vendors for RH Modern were already burdened from their 

production of RH’s existing product lines. See ¶¶36-38. 

180. On March 27, 2015, RH filed an annual report on Form 10-K with the SEC. 

In a section titled “Product Development,” the 10-K promoted RH’s “proprietary product 

development platform,” by virtue of which the Company had “streamlined [its] product 

development organization and process to shorten product lead times[.]” The statement 

continued, “Key aspects of our product development platform are . . . Organization . . . 

Process . . . [and] . . . Facility.” The 10-K stated that “[a]s a result of [this] proprietary 

[platform], [the Company’s] typical product lead times are 3-9 months, which enhances 

[RH’s] ability to introduce more new products with each collection.” RH reported 

merchandise inventories of approximately $559 million, up from $453 million at the end 

of fiscal 2014. 

181. Defendants’ statements in the Form 10-K, identified above in ¶180, were 

misleading and omitted material facts. Defendants’ promotion of RH’s purported “ability 

to introduce more new products” through a “streamlined product development 

organization” and references to lead times were misleading. The Company failed to design 

and order necessary inventory for the RH Modern launch, and Defendants were not 

ordering RH Modern products in compliance with the product lead times. Defendants’ 

ability to introduce more new products was compromised by such delays, as Defendants 

had not ordered the required inventory, or any substantial amount of RH Modern inventory. 

See ¶¶32-38; see also ¶¶39-50. Defendants also omitted that, at the time, (i) RH’s reported 

inventories were due to excess accumulated inventory on RH’s existing product lines (see 

¶¶56-64); and (ii) RH’s vendors for RH Modern were already burdened from their 

production of RH’s existing product lines (see ¶¶36-38). 

182. On June 11, 2015, Defendants published on the Company website a “video 

presentation” for investors, in which the Individual Defendants participated and which, as 

described above, focused on the promotion of RH Modern. During the video, Defendant 

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Boone stated that “[i]nventory at the end of the first quarter was up 24%, and we expect to 

end the year with inventory growth that is higher than our sales growth, given the inventory 

investments in RH Modern and other newness that we will introduce this fall.” 

183. Defendants also held a quarterly investor conference call on June 11, 2015, 

in which Defendants Boone and Friedman, and RH’s Vice President of Investor Relations, 

Cammeron McLaughlin, participated. The first question on the call was from analyst Adam 

Sindler at Deutsche Bank, who asked whether RH’s manufacturers “have the capacity to 

handle” the RH Modern launch, and how the launch of RH Modern would affect the 

Company’s “balance sheet through inventory.” Boone responded that “because we have a 

lot of the newness and investment that are coming in the back half” of the year, “we will 

grow inventory ahead of sales at the end of Q4.” Friedman responded with a reassurance 

regarding the availability of RH Modern products from the manufacturers, noting that for 

RH Modern “most of Modern is scaling on our current vendor base with some new vendors 

added in some categories.” 

184. In response to a question from Matt Nemer from Wells Fargo Securities 

regarding “speed to delivery” for RH Modern products, Friedman stated “[on] the Modern 

side, and the lead times, the wait times are a real disadvantage for the people in the 

marketplace today,” but that at RH, “[w]e are going to compete on speed just like we would 

our current business.” He continued, “we’re being relatively conservative on inventory, 

that’s how and where we are buying” and that “we’re going to oversell some stuff – 

overbuy, underbuy and so our lead times and our delivery won’t be optimized in the 6 

months or 12 months. After that, I think, you think about it, it’s going to be a huge 

competitive advantage versus how the marketplace exists and operates today.” In response 

to a question from Neely Tamminga, an analyst from Piper Jaffray & Co., regarding 

Defendants’ stated “elevation of inventory because of the newness,” Boone stated that “[i]t 

will grow a little bit in Q2 . . . and then we’ll make some additional investments in the 

Modern and other newness that we are having. It will grow a little bit more in Q2 then it 

will dip, and then it will grow a little bit more in Q4.” 

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185. Defendants’ statements in the video presentation and investor conference 

call, identified above in ¶¶182-84, were false and misleading. The video presentation was 

staged with RH Modern products that were not finished products from the RH Modern line. 

They were instead “one-offs” that had been hastily constructed by hand shortly before the 

investor video, and the designs for the products had not yet been provided to RH’s vendors. 

See ¶¶74-76. Defendants highlighted “inventory growth that is higher than our sales 

growth, given the inventory investments in RH Modern,” but Defendants had not ordered 

necessary inventory for RH Modern. See ¶¶32-38; see also ¶¶39-50. Defendants’ 

references to “compet[ing] on speed,” the possibility that RH could “overbuy” or 

“underbuy” on RH Modern, and to RH being “conservative” on “how and where” RH was 

buying, were misleading because they omitted material facts and gave the impression that 

RH was buying substantial quantities of RH Modern products and perhaps even 

“overbuy[ing],” and that the question was whether RH was buying the right variety of 

products, when, in fact, Defendants had not ordered necessary inventory or any substantial 

amount of RH Modern inventory. See id. Defendants also omitted that, at the time, (i) 

RH’s reported inventories were due to excess accumulated inventory on RH’s existing 

product lines (see ¶¶56-64); and (ii) RH’s vendors for RH Modern were already burdened 

from their production of RH’s existing product lines (see ¶¶36-38). 

186. On September 10, 2015, Defendants published a press release regarding the 

Company’s performance and filed it with the SEC on Form 8-K. In the press release, 

Defendant Friedman promoted the launch of RH Modern, citing “the significant 

investments we are making to develop the many new businesses we have in the pipeline 

and the infrastructure we are putting in place to scale them.” 

187. On September 10, 2015, Defendants also published on the Company website 

a “video presentation” for investors and analysts, in which the Individual Defendants 

participated. During the video, Defendant Boone stated that “[i]nventory at the end of the 

second quarter was up 29% and we expect to end the year with inventory growth that is 

higher than our sales growth given the inventory investments necessary for the launches of 

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RH Modern and RH Teen.” Also on September 10, 2015, Defendants held a quarterly 

investor conference call, in which the Individual Defendants participated. During the call, 

analyst Cristina Fernández from Telsey Advisory Group asked, regarding the Company’s 

reported inventory growth of 29% in for Q2 2015, “how much of that is related to 

Modern?” Boone responded that “some of it’s on the water,” it would “show up this quarter 

and into Q4,” and “[s]o we do expect inventory, as I mentioned on the video, to outpace 

revenue growth, just because we do need to make those investments in Modern . . . 

inventory.” 

188. Defendants’ statements on September 10, 2015, identified above in ¶¶186-

87, omitted material facts and gave a reasonable investor the impression of a state of affairs 

that differed in a material way from the one that actually existed at RH. In truth, Defendants 

were not ordering necessary RH Modern inventory (see ¶¶32-38; see also ¶¶39-50), and 

instead of inventory growth outpacing sales growth and RH making the “necessary” 

investments in RH Modern, Defendants continued to make changes to RH Modern product 

designs, preventing the Company from having inventory at the time of the RH Modern 

launch. Defendants also omitted that, at the time, (i) RH’s reported inventories were due 

to excess accumulated inventory on RH’s existing product lines (see ¶¶56-64); and (ii) 

RH’s vendors for RH Modern were already burdened from their production of RH’s 

existing product lines (see ¶¶36-38). 

189. On October 12, 2015, Defendants published a press release entitled “RH 

Introduces RH Modern.” The press release stated that RH Modern “debuts with a unique 

website and significant physical presence, including a dramatic, standalone RH Modern 

Gallery at the site of RH’s former gallery on Beverly Boulevard in Los Angeles, the entire 

ground floor of the Flatiron Gallery in New York, plus entire floors in the Company’s next 

generation Design Galleries in Chicago, Denver, Tampa and Austin.” 

190. Defendants’ statements above in ¶189 were misleading. Defendants omitted 

that (i) the Company website and Source Book displayed products created in Photoshop 

that were digitally manipulated and not fully designed (see ¶¶77-78); (ii) the store openings 

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used sample products due to a lack of inventory (see ¶¶44-47); and (iii) the Company had 

failed to order inventory to fulfill customer orders (see ¶¶32-50). 

191. On December 10, 2015, Defendants published a press release regarding RH’s 

financial performance and filed the press release with the SEC on Form 8-K. In the press 

release, Defendant Friedman stated that Defendants were “extremely encouraged by the 

early results we are seeing out of . . . RH Modern” and that “RH Modern is trending to add 

significant incremental revenues.” With seven weeks remaining in the fiscal year, the press 

release announced that Defendants were raising the financial guidance for RH for the fourth 

quarter of fiscal 2015 and the 2015 fiscal year, including by raising the Company’s 

guidance for fiscal 2015 net revenues, adjusted net income, and adjusted diluted earnings 

per share. 

192. On December 10, 2015, Defendants published on the Company website a 

“video presentation” for investors and analysts, in which the Individual Defendants 

participated. Defendants continue to promote RH Modern while omitting material facts. 

During the video, Defendant Boone stated that “inventory at the end of the third quarter 

was up 25% year over year and we continue to expect to end the year with inventory growth 

higher than our sales growth given the inventory investments in RH Modern and RH 

Teen.” Purporting to “update [investors] on [RH’s] recent progress,” Defendant Friedman 

stated that “RH Modern was launched with a 540-page source book, its own dedicated 

website, a significant retail presence inside our Next Generation galleries, plus a freestanding gallery on Beverly Boulevard in Los Angeles.” Friedman stated that “the trends 

are very encouraging. In the retail locations where RH Modern is now featured, we have 

early data that RH Modern is adding more than 40 points of incremental volume. In Los 

Angeles where we opened our first free-standing location, RH Modern is trending to add 

over 60 points of incremental volume with a $25 million annual run rate, while our Melrose 

gallery continues to comp positive only a few blocks away.” Defendants also reiterated 

their increased guidance for fiscal 2015. See ¶191. 

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193. On December 10, 2015, Defendants also held a quarterly investor conference 

call, in which the Individual Defendants and RH’s Senior Vice President of Investor 

Relations and Strategy, Cammeron McLaughlin, participated. During the call, Defendant 

Boone stated that “we have been talking about the cadence of inventory for the year, and 

really, nothing’s changed. We continue to expect to have year-over-year inventory growth 

ahead of sales growth in Q4, mostly because of the cadence of newness.” Boone further 

stated that “[t]he investments we have made in our supply chain and systems infrastructure 

will enable us to continue to improve our customer experience and support our long term 

growth.” Defendants also stated that “various external macro factors outside our control, 

including deteriorating trends in regions impacted by currency and oil prices,” negatively 

impacted RH’s business. 

194. When, during the December 10, 2015 investor conference call, an analyst 

asked whether “out of stocks in Modern” would be “a gating factor to the early success of 

Modern,” Friedman reassured investors that “[w]e’ve got a lot of new product” and 

“in-stocks are going to improve every week.” Friedman characterized the RH Modern 

situation as one of high demand for certain products, not a failure to timely order adequate 

inventory or a problem that will persist, stating that “the best sellers in a new business are 

always going to sell out, and you’re going to always have to respond and catch up with 

those” and highlighting that “the demand is outstanding.” Friedman stated that a 

“headline” was that RH Modern was “performing ahead of our expectations.” During the 

call, analyst Jessica Mace from Nomura Securities challenged Defendants regarding the 

increased guidance that the Company had revealed the same day, asking “what’s given you 

the confidence in Q4 to increase your revenue guidance range, even despite all the factors 

you named, like the oil and the later Source Book?” Friedman responded that “[a]s of 

today we are ahead of Q4. That’s why.” Friedman also stated during the call that “we have 

a lot of data that we’re looking at.” When asked by an analyst about how the purported 

adverse macro trends Defendants noted were playing out in the fourth quarter, Defendants 

indicated that such issues were accounted for in the Company’s guidance, stating that 

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“[i]t’s about basically the same as it dragged in the third quarter” and “we have a good read 

so far how we’re trending versus the third quarter, so far, four or five weeks in.” 

195. Also on December 10, 2015, RH filed with the SEC its quarterly report for 

the third quarter of fiscal 2015 on Form 10-Q. The Form 10-Q reported in the third quarter 

there had been “increases in inventory of $201.7 million related to the increase in 2015 

Spring, RH Teen and RH Modern collections.” 

196. Defendants’ statements on December 10, 2015, identified above in ¶¶191-

95, were false and misleading, and omitted material facts. Defendants’ statements that 

“nothing’s changed” regarding the inventory “cadence” and that inventories were growing 

“because of the cadence of newness,” while highlighting the “improve[d] . . . customer 

experience,” omitted material facts. At the time, RH was experiencing overwhelming 

customer complaints, and extensive delays on RH Modern customer orders, because RH 

had launched RH Modern two months earlier with essentially no stock on hand to fulfill 

customer orders. See ¶¶32-55. Inventories were inadequate and were not growing in the 

fourth quarter, and RH accumulated excess inventory on non-RH Modern product lines. 

See id.; ¶¶56-64. In response to a question about whether “out of stocks in Modern” would 

be “a gating factor to the early success of Modern,” the response that “[w]e’ve got a lot of 

new product” and “in-stocks are going to improve every week” was misleading because 

RH was sorely out of stock, inventory was decreasing, and the rampant problems with back 

orders on RH Modern were impacting RH’s business, including its financial results – that 

is, “out of stocks on Modern” were already “a gating factor to the early success of Modern.” 

See ¶¶32-55. Defendant Friedman’s statement that RH Modern “demand is outstanding,” 

RH Modern was “performing ahead of our expectations,” and “the best sellers in a new 

business are always going to sell out,” concealed the pervasive back orders and customer 

dissatisfaction, and misled investors regarding the extent of, and reasons for, the RH 

Modern out-of-stocks. See id. These facts were also omitted from Defendant Friedman’s 

statements when he provided a purported “update” regarding RH Modern during the video 

presentation, citing RH Modern store openings and the distribution of the Source Book, 

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but omitting that the Source Book used Photoshopped products that did not yet exist, the 

stores used sample products due to a lack of inventory, high shipping costs were necessary 

due to RH Modern delays, and that there were pervasive back orders and customer 

dissatisfaction. See ¶¶44-47, 51-55, 77-78. In addition, Friedman’s representation that as 

of December 10, 2015, RH was “ahead of Q4,” i.e., had revenue of more than $708 million 

already in the current fiscal quarter, were false and omitted the RH Modern launch backlog and order cancellations. Defendants’ statements regarding “various external macro 

factors” omitted that the failed RH Modern launch was in truth driving the Company’s 

disappointing financial results. See ¶¶32-55, 103-14, 161. 

197. On February 24, 2016, Defendants published a press release regarding the 

Company’s financial performance and filed the press release with the SEC on Form 8-K. 

In the press release, Friedman blamed “macro economic challenges” for RH’s poor 

performance, citing the purported impact of “energy, oil, or currency fluctuations” on 

certain markets for RH products and stating that “we are clearly operating in different 

market conditions than a year ago.” Friedman also stated that “increased volatility in the 

U.S. stock markets” hurt sales. Friedman further stated that a “key factor” having a 

“negative effect on our fourth quarter results” was that “[w]hile the initial response to RH 

Modern has been outstanding, we are experiencing shipping delays as certain vendors are 

struggling to ramp up production of this new product line.” 

198. Defendants’ statements in the February 24, 2016 press release, identified 

above in ¶197, were false and misleading, and omitted material facts. Defendants’ 

statements regarding the “volatility in the U.S. stock markets,” “energy, oil, or currency 

fluctuations,” and “macro economic challenges” omitted that the failed RH Modern launch 

was in truth driving the Company’s disappointing financial results. See ¶¶32-55, 103-14, 

161. Similarly, the statement that RH was “experiencing shipping delays as certain vendors 

are struggling to ramp up production” of RH Modern omitted the material facts that 

Defendants had failed to order inventory for the RH Modern launch, RH experienced high 

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back orders and customer complaints, and RH’s reported inventory levels were due to 

excess accumulated inventory on RH’s existing product lines. See ¶¶32-64. 

199. On March 29, 2016, Defendants published on the Company website a “video 

presentation” for investors, in which the Individual Defendants participated. During the 

video, Defendant Friedman stated that “certain vendors” were “struggling to ramp up 

production” on the RH Modern line. Friedman also stated that “we continue to see 

underperformance in the markets affected by energy, oil, or currency fluctuations, 

specifically Texas, Miami, and Canada” and stated that “volatility in the U.S. stock markets 

. . . negatively impacted our performance.” Boone stated that RH was “investing 

approximately $8 million to $10 million during the first quarter due to higher cancellation 

rates, shipping delays, and our overall initiative to elevate the customer experience,” which 

amounted to an “investment in the customer experience” of “$0.12 to $0.15 per share” for 

the first quarter. 

200. On March 29, 2016, Defendants published a press release regarding RH’s 

financial performance and filed the press release with the SEC on Form 8-K. The press 

release stated that “customer accommodations due to RH Modern production delays” 

would reduce the Company’s adjusted diluted EPS in fiscal 2016 by $0.22. 

201. Defendants also held a quarterly investor conference call on March 29, 2016, 

in which Defendants Boone and Friedman, and RH’s Senior Vice President of Investor 

Relations and Strategy, Cammeron McLaughlin, participated. During the call, Defendant 

Friedman stated that on RH Modern, “[w]e’re currently in the 70% range as far as our instocks today, and we expect that to build to the mid-80%s by the end of the quarter which 

is more at a normalized level.” Friedman also reiterated later in the call that “[t]he instocks in Modern are going up.” 

202. Defendants’ statements on March 29, 2016, identified above in ¶¶199-201, 

were false and misleading, and omitted material facts. Defendants’ statements that “we 

continue to see underperformance in the markets affected by energy, oil, or currency 

fluctuations, specifically Texas, Miami, and Canada” and that “volatility in the U.S. stock 

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markets . . . negatively impacted our performance,” omitted that the failed RH Modern 

launch was in truth driving the Company’s disappointing financial results. See ¶¶32-55, 

103-14, 161. In truth, Defendants had failed to order inventory for the RH Modern launch, 

and back orders and customer complaints were overwhelming, and RH’s reported 

inventory levels were due to excess accumulated inventory on RH’s existing product lines. 

See ¶¶32-64, 103-14, 161. In addition, Defendants’ statements regarding the costs for 

customer accommodations omitted that employees were authorized, carte blanche, to give 

customers unlimited amounts of accommodations without requiring authorization from 

management, leading to skyrocketing expenses. See ¶¶103-14. Defendant Friedman’s 

statements regarding the in-stock levels on RH Modern mischaracterized the true in-stock 

levels at the time. See ¶¶166-68. 

VI. ADDITIONAL ALLEGATIONS OF DEFENDANTS’ SCIENTER

203. Numerous facts in addition to those discussed above further support a strong 

inference that Defendants knew, or were deliberately reckless in disregarding, the omitted 

facts about the RH Modern launch, available RH Modern inventory, customer cancellations 

and expensive accommodations, and accumulation of inventory of products from the 

existing line when making the false and misleading statements identified above. 

204. Defendant Friedman was intimately involved in the RH Modern launch. 

Defendant Friedman was personally involved in the RH Modern launch, including 

designing the line, deciding timing of orders to vendors, staging photo and video shoots, 

and store openings. His personal approval was required for product development, and he 

repeatedly delayed product development through changes, including last-minute changes 

just weeks before release of the RH Modern Source Book. ¶¶66-73, 90-94. Defendant 

Friedman ultimately made the determination of what got ordered and how much was 

ordered. Id. He was also well aware of, and personally participated in, the Company’s 

misleading publication of RH Modern products in a promotional video to investors, in the 

Source Book, and on the website. ¶¶74-78. Around the time of the launch, Friedman also 

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made personal appearances at store openings that featured RH Modern sample products. 

¶¶44-47, 140-42. 

205. Friedman received weekly and even daily escalation reports that detailed the 

voluminous complaints about delayed delivery times, lack of inventory, and product 

quality. ¶¶82, 92, 96-102. He initiated the task force and the “delight the customer” 

initiative to combat the rampant cancellations and avoid customers reporting their 

complaints to the media. ¶¶98, 103-14. He received the weekly reports of millions of 

dollars of customer accommodations as part of the initiative. ¶¶95-102. Defendant 

Friedman’s personal involvement and control over the RH Modern launch and 

accommodations raise a strong inference that he knew, or was deliberately reckless in not 

knowing, about the design delays, lack of orders before the launch, available inventory, 

and the impact on the Company’s customer relations and financial results. 

206. Defendants received regular reports and current data regarding the lack of 

RH Modern inventory and the disastrous RH Modern launch. Defendant Friedman told 

investors that “we have a lot of data that we’re looking at.” As explained above (see ¶¶79-

89, 112), Defendants monitored current RH Modern inventory, sales, and back order data 

through specific Company databases, reports, and meetings. Such data was available on 

the Merchandise Drill Down system, and RH’s employees witnessed Friedman access the 

system. Executives received weekly “in stock” reports. RH used a system called CW, and 

analysts sent Friedman weekly reports drawn from CW showing the orders and back orders. 

Friedman also made notes on orders in CW. Moreover, Friedman received weekly sales 

reports that showed orders as well as what inventory was available on RH Modern, on a 

SKU-by-SKU basis, and also showed the delayed delivery. RH also had a system called 

GT Nexus that provided additional information regarding product delays by showing where 

items were in transit. Defendant Friedman also personally monitored customer service and 

customer accommodations in the wake of the RH Modern launch, and was provided with 

up-to-date data regarding the extent and costs of the customer accommodations. See ¶¶95-

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102. Defendants’ review of extensive reports and data with material facts that were omitted 

from their Class Period statements further raises a strong inference of scienter. 

207. “The law of materials and production” supports scienter. Given the 

necessary lead time to manufacture and ship RH Modern products, it was obvious to RH’s 

executives that if RH Modern products were not ordered at least six months in advance of 

the October 2015 launch, those products would not be in stock or available for customers 

at the time of launch and would cause substantial delay for customers. It was “kind of like 

physics; it’s the law of materials and production.” See ¶33. 

208. The ease with which outsiders discovered RH’s low inventory of RH Modern, 

back orders, and customer delays supports scienter because of the Individual Defendants’ 

superior access to information and obligations as RH executives. RH’s level of RH 

Modern inventory was easily observed by outsiders. For example, on March 17, 2016, 

analysts at BB&T Capital Markets disclosed the results of a survey they conducted by 

asking RH about the availability of different RH Modern products. The survey “revealed 

[that] widespread supply chain issues continued into Q1’16 and are even worse than we 

feared,” putting “the burden of proof on senior management to demonstrate the wheels 

have not completely fallen off.” BB&T downgraded RH’s stock and summarized its 

findings: “To be blunt, we find it shocking over half of RH Modern products are currently 

not in stock and will take over two months on average before customers are even contacted 

about scheduling deliveries.” The analysts further concluded that they were “troubled” 

that RH management had not “ensure[d] its supply chain was adequately prepared given 

its repeated bullish comments on the concept’s potential.” ¶166. Outsiders also easily 

discovered that Defendants’ excuses regarding oil, currency, and stock market fluctuations 

were false and misleading. See ¶177. 

209. The launch of RH Modern was critical to the Company’s business. 

Defendants repeatedly emphasized the importance of the RH Modern launch to RH’s 

business. For instance, Friedman emphasized that RH Modern “is the most important new 

business we have launched in the history of this Company,” “the most important and 

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significant new home furnishings business to be launched in the last 15 or 20 years,” and 

“the most comprehensive launch of a new business and brand in the history of our 

industry.” ¶¶134, 137. He stated that RH Modern was “core to RH,” would open up an 

“entirely new market[]” for the Company as it was “significantly incremental to what we’re 

doing today,” and that it was a “game-changer” that was “our finest work ever.” ¶¶115, 

130, 153. 

210. Defendants took undisclosed steps that show their knowledge of the 

inadequate preparation for the launch, lack of inventory, customer complaints, and 

expensive accommodations. Leading up to the launch of RH Modern, Defendant Friedman 

personally participated in promoting the brand through photographs of jerry-rigged, oneoff products and by placing photographs of Photoshopped, non-existent products in the RH 

Modern catalog and on the website. See ¶¶74-78. Given the lack of inventory, Defendants 

also spent large sums transporting one-off samples to RH’s retail stores in order to have at 

least some products displayed to the public. See ¶¶44-47. Following the launch, 

Defendants initiated an undisclosed “delight the customer” program due to the 

overwhelming customer complaints and cancellations. See ¶¶51-55, 103-14. 

211. Friedman’s efforts to furnish his homes with RH Modern show his knowledge 

of omitted facts about the RH Modern launch. Defendant Friedman was remodeling three 

homes at the same time that RH was developing the RH Modern line. RH’s Buyer from 

2014 to 2016 explained that Defendant Friedman used RH’s resources and employees – 

which could have been focused on getting RH Modern product to customers – towards 

remodeling his homes. The buyer explained that he split his time working on Friedman’s 

home project and on RH business, and that several additional employees worked on 

Friedman’s homes as well. RH’s buyer further explained that employees were working on 

special projects to make Friedman’s vision for his homes come to life, “and those hands 

were needed to work on product to sell to the customer.” During the delays with RH 

Modern, Friedman had vendors make special items for him when they needed that material 

and resources to make product for customer orders. Friedman was taking RH Modern 

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inventory while customers were still waiting. RH’s buyer explained that this was ongoing 

in 2015. 

212. RH’s Customer Service Lead Assist until April 2016 similarly recalled that 

after RH finally began to receive RH Modern products in stock, Friedman took RH Modern 

products for his personal homes, each of which was over 7,000 square feet, that were 

available to fill customer orders, and instead used them for his personal homes. She stated 

that anyone at the Company could pull up Friedman’s orders and look at them. Friedman 

had six to eight orders that totaled $10 million in the classic RH line, but then he cancelled 

all of that and ordered the same amount of RH Modern in March or April 2016. She 

recalled one instance in particular in March or April 2016 where RH switched the order for 

a sofa that was supposed to be delivered to a customer the next day to Friedman instead. 

She recalled that at the time RH was giving away $30,000 orders to customers for free due 

to the “delight the customer” initiative, yet Friedman was pulling popular items off orders 

to go into his homes. She explained that even while the building was supposedly on fire 

and they were supposed to be delighting the customer, Friedman would take product from 

a customer’s order for himself. 

VII. LOSS CAUSATION 

213. Defendants’ materially false and misleading statements and omissions 

artificially inflated the price of RH common stock and maintained inflation in the stock 

price. A series of partial disclosures revealed the relevant truth and removed the artificial 

inflation from the stock price. 

214. On December 10, 2015, the Company disclosed that “the in-stock position is 

not great today” for RH Modern and that “it’s not that we were in [stock] and then we were 

out [of stock], it’s really just a build of getting some of those most initial products” in the 

RH Modern line. Defendants further disclosed resulting quarterly revenue at the low end 

of prior guidance and a late release of the Source Book. 

215. The Company’s partial disclosure caused RH’s stock price to decline. On 

December 11, 2015, the stock price declined by $3.78 per share, erasing over $153 million 

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in market value. Investors continued to react to the news on the next trading day, December 

14, 2015, and the stock price fell another $5.16 per share, erasing an additional $208 

million in market capitalization. 

216. On February 24, 2016, Defendants disclosed “shipping delays” for RH 

Modern, that this “key factor” negatively affected the Company’s financial results, that the 

“poor in-stocks . . . suppressed orders,” and that the Company did not plan to introduce any 

new businesses in fiscal 2016 due to the “headwinds.” The Company disclosed resulting 

financial results below the Company’s recent guidance for fiscal 2015 and the fourth 

quarter of fiscal 2015. 

217. The partial disclosures on February 24, 2016 caused RH’s stock price to 

decline. On February 25, 2016, the share price fell $13.43, erasing over $543 million in 

market capitalization on the highest trading volume in a single day for RH stock. As 

Bloomberg reported, this was the “biggest single-day drop [in Company share price] since 

the retailer held its initial public offering in 2012.” 

218. On March 17, 2016, BB&T Capital Markets disclosed “shocking[ly]” low 

levels of in-stocks for the RH Modern line, “reveal[ing] [that] widespread supply chain 

issues continued into Q1’16 and are even worse than we feared,” and putting “the burden 

of proof on senior management to demonstrate the wheels have not completely fallen off.” 

The disclosure continued: “To be blunt, we find it shocking over half of RH Modern 

products are currently not in stock and will take over two months on average before 

customers are even contacted about scheduling deliveries.” 

219. The March 17, 2016 partial disclosures caused RH’s stock price to decline. 

On March 17, 2016, the share price declined $2.20, erasing over $89 million in market 

capitalization. 

220. After the market closed on June 8, 2016, Defendants disclosed poor financial 

results “due to RH Modern production delays during the first half.” The Company further 

disclosed that instead of spending $8 million to $10 million to “elevate the customer 

experience” in the quarter ending April 30, 2016 – a figure the Company had provided to 

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investors two-thirds of the way through the quarter – RH had in truth spent $18 million on 

such “customer accommodations and related expenses, largely as a result of RH Modern 

production delays.” And while the Company had provided guidance of net income in the 

range of $1.6 million to $2.5 million and earnings between $0.04 and $0.06 per share for 

the quarter, the Company reported a resulting net loss of $2.1 million and a loss of $0.05 

per share. Defendants disclosed that they were taking an “aggressive approach to 

rationalizing our SKU count and optimizing inventory,” eliminating excess inventory on 

the RH core product lines – the very excess inventory that had accumulated before and 

during the Class Period without disclosure. Defendants disclosed that the Company had 

“extra inventory” that was “bloating [the] balance sheet,” as well as “overstock” in the nonRH Modern categories “across the board,” and that RH had decided to use “clearance 

events” and open more outlet stores “to support [its] more aggressive stance in rationalizing 

[its] SKU base and reducing [its] inventories.” 

221. The price of RH’s stock declined in response to Defendants’ disclosures. On 

June 9, 2016, the share price dropped over 21% on the highest trading volume in the 

Company’s history since its IPO. The share price dropped another 6.5% the next day, again 

on high trading volume. The drop erased over $386 million in shareholder value. 

VIII. PRESUMPTION OF RELIANCE 

222. At all relevant times, the market for RH’s common stock was efficient for 

the following reasons, among others: 

(a) RH’s stock met the requirements for listing, and was listed and actively 

traded on the New York Stock Exchange, a highly efficient and automated market; 

(b) As a regulated issuer, RH filed periodic reports with the SEC and the New 

York Stock Exchange; 

(c) RH regularly communicated with public investors via established market 

communication mechanisms, including through regular disseminations of press 

releases on the national circuits of major newswire services and through other wideranging public disclosures, such as communications with the financial press and 

other similar reporting services; and 

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(d) RH was followed by numerous securities analysts employed by major 

brokerage firms who wrote reports which were distributed to those brokerage firms’ 

sales force and certain customers. Each of these reports was publicly available and 

entered the public market place. 

223. As a result of the foregoing, the market for RH’s common stock reasonably 

and promptly digested current information regarding RH from all publicly available 

sources and reflected such information in the price of RH’s common stock. All purchasers 

of RH’s common stock during the Class Period suffered similar injury through their 

purchase of RH’s common stock at artificially inflated prices, and a presumption of 

reliance applies. 

224. A Class-wide presumption of reliance is also appropriate in this action under 

the United States Supreme Court holding in Affiliated Ute Citizens of Utah v. United States, 

406 U.S. 128 (1972), because the claims asserted herein against Defendants are predicated 

upon omissions of material fact for which there is a duty to disclose. 

IX. INAPPLICABILITY OF THE STATUTORY SAFE 

HARBOR AND BESPEAKS CAUTION DOCTRINE 

225. The statutory safe harbor or bespeaks caution doctrine applicable to forwardlooking statements under certain circumstances does not apply to any of the false and 

misleading statements pleaded in this Complaint. None of the statements complained of 

herein was a forward-looking statement. Rather, they were historical statements or 

statements of purportedly current facts and conditions at the time the statements were 

made. 

226. To the extent that any of the false and misleading statements alleged herein 

can be construed as forward-looking, those statements were not accompanied by 

meaningful cautionary language identifying important facts that could cause actual results 

to differ materially from those in the statements. Then-existing facts contradicted 

Defendants’ statements regarding the launch of RH Modern and the Company’s inventory. 

Given the then-existing facts contradicting Defendants’ statements, any generalized risk 

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disclosures made by the Company were not sufficient to insulate Defendants from liability 

for their materially false and misleading statements and omissions. 

227. To the extent that the statutory safe harbor does apply to any forward-looking 

statements pleaded herein, Defendants are liable for those false forward-looking statements 

because at the time each of those statements was made, the particular speaker knew that 

the particular forward-looking statement was false, and the false forward-looking statement 

was authorized and approved by an executive officer of RH who knew that the statement 

was false when made. 

X. CLASS ACTION ALLEGATIONS 

228. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal 

Rules of Civil Procedure on behalf of all persons who purchased the common stock of RH 

during the Class Period (the “Class”). Excluded from the Class are (i) Defendants; (ii) 

members of the immediate family of each Individual Defendant; (iii) any person who was 

an officer or director of RH; (iv) any firm or entity in which any Defendant has or had a 

controlling interest; (v) any person who participated in the wrongdoing alleged; (vi) 

Defendants’ liability insurance carriers; (vii) any affiliates, parents, or subsidiaries of RH; 

(viii) all RH plans that are covered by ERISA; and (ix) the legal representatives, agents, 

affiliates, heirs, beneficiaries, successors-in-interest, or assigns of any excluded person or 

entity, in their respective capacity as such. 

229. The members of the Class are so numerous that joinder of all members is 

impracticable. Throughout the Class Period, RH shares were actively traded on the New 

York Stock Exchange. As of December 2, 2016, there were approximately 41 million 

shares of RH stock outstanding. While the exact number of Class members is unknown to 

Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs 

believe that there are at least hundreds of thousands of members of the proposed Class. 

Class members who purchased RH common stock may be identified from records 

maintained by RH or its transfer agent(s), and may be notified of this class action using a 

form of notice similar to that customarily used in securities class actions. 

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230. Plaintiffs’ claims are typical of Class members’ claims, as all members of the 

Class were similarly affected by Defendants’ wrongful conduct in violation of federal laws 

as complained of herein. 

231. Plaintiffs will fairly and adequately protect Class members’ interests and 

have retained competent counsel experienced in class actions and securities litigation. 

232. Common questions of law and fact exist as to all Class members and 

predominate over any questions solely affecting individual Class members. Among the 

questions of fact and law common to the Class are: 

(a) whether the federal securities laws were violated by Defendants’ acts 

as alleged herein; 

(b) whether Defendants made statements to the investing public during the 

Class Period that were false, misleading or omitted material facts; 

(c) whether Defendants acted with scienter; and 

(d) the proper way to measure damages. 

233. A class action is superior to all other available methods for the fair and 

efficient adjudication of this action because joinder of all Class members is impracticable. 

Additionally, the damage suffered by some individual Class members may be relatively 

small so that the burden and expense of individual litigation make it impossible for such 

members to individually redress the wrong done to them. There will be no difficulty in the 

management of this action as a class action. 

XI. CLAIMS FOR RELIEF 

COUNT I 

For Violations Of Section 10(b) Of the Exchange Act And 

SEC Rule 10b-5 Promulgated Thereunder 

(Against All Defendants) 

234. Plaintiffs repeat and re-allege each and every allegation contained above as 

if fully set forth herein. 

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235. This Count is asserted on behalf of all members of the Class against 

Defendants RH, Friedman, and Boone for violations of Section 10(b) of the Exchange Act, 

15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. 

236. During the Class Period, Defendants disseminated or approved the false 

statements specified above, which they knew were, or they deliberately disregarded as, 

misleading in that they contained misrepresentations and failed to disclose material facts 

necessary in order to make the statements made, in light of the circumstances under which 

they were made, not misleading. 

237. Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 in 

that they: (a) employed devices, schemes, and artifices to defraud; (b) made untrue 

statements of material facts or omitted to state material facts necessary in order to make 

the statements made, in light of the circumstances under which they were made, not 

misleading; and/or (c) engaged in acts, practices, and a course of business that operated as 

a fraud or deceit upon Plaintiffs and others similarly situated in connection with their 

purchases of RH common stock during the Class Period. 

238. Defendants, individually and in concert, directly and indirectly, by the use of 

means or instrumentalities of interstate commerce and/or of the mails, engaged and 

participated in a continuous course of conduct that operated as a fraud and deceit upon 

Plaintiffs and the Class; made various untrue and/or misleading statements of material facts 

and omitted to state material facts necessary in order to make the statements made, in light 

of the circumstances under which they were made, not misleading; made the above 

statements intentionally or with a deliberately reckless disregard for the truth; and 

employed devices and artifices to defraud in connection with the purchase and sale of RH 

common stock, which were intended to, and did: (a) deceive the investing public, including 

Plaintiffs and the Class, regarding, among other things, RH’s preparedness for the launch 

of RH Modern; (b) artificially inflate and maintain the market price of RH common stock; 

and (c) cause Plaintiffs and other members of the Class to purchase RH common stock at 

artificially inflated prices and suffer losses when the true facts became known. 

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239. Defendants RH, Friedman, and Boone are liable for all materially false and 

misleading statements made during the Class Period, as alleged above. 

240. As described above, Defendants acted with scienter throughout the Class 

Period, in that they acted either with intent to deceive, manipulate, or defraud, or with 

deliberate recklessness. The misrepresentations and omissions of material facts set forth 

herein, which presented a danger of misleading buyers or sellers of RH stock, were either 

known to the Defendants or were so obvious that the Defendants should have been aware 

of them. 

241. Plaintiffs and the Class have suffered damages in that, in reliance on the 

integrity of the market, they paid artificially inflated prices for RH common stock, which 

inflation was removed from its price when the true facts became known. Plaintiffs and the 

Class would not have purchased RH common stock at the prices they paid, or at all, if they 

had been aware that the market price had been artificially and falsely inflated by these 

Defendants’ misleading statements. 

242. As a direct and proximate result of these Defendants’ wrongful conduct, 

Plaintiffs and the other members of the Class suffered damages attributable to the material 

misstatements and omissions alleged herein in connection with their purchases of RH 

common stock during the Class Period. 

COUNT II 

For Violations Of Section 20(a) Of The Exchange Act 

(Against Defendants Friedman and Boone) 

243. Plaintiffs repeat and re-allege each and every allegation contained above as 

if fully set forth herein. 

244. This Count is asserted on behalf of all members of the Class against 

Defendants Friedman and Boone for violations of Section 20(a) of the Exchange Act, 15 

U.S.C. § 78t(a). 

245. During their tenures as officers and/or directors of RH, each of these 

Defendants was a controlling person of the Company within the meaning of Section 20(a) 

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of the Exchange Act. See ¶¶22-24. By reason of their positions of control and authority as 

officers and/or directors of RH, these Defendants had the power and authority to direct the 

management and activities of the Company and its employees, and to cause the Company 

to engage in the wrongful conduct complained of herein. These Defendants were able to 

and did control, directly and indirectly, the content of the public statements made by RH 

during the Class Period, including its materially misleading financial statements, thereby 

causing the dissemination of the false and misleading statements and omissions of material 

facts as alleged herein. 

246. In their capacities as senior corporate officers of the Company, and as more 

fully described above in ¶¶22-24, Defendants Friedman and Boone had direct involvement 

in the day-to-day operations of the Company, in reviewing and managing its regulatory and 

legal compliance, and in its reporting functions. Defendants Friedman and Boone signed 

the Company’s SEC filings during the Class Period, and were directly involved in 

providing false information and certifying and approving the false statements disseminated 

by RH during the Class Period. As a result of the foregoing, Defendants Friedman and 

Boone, as a group and individually, were controlling persons of RH within the meaning of 

Section 20(a) of the Exchange Act. 

247. As set forth above, RH violated Section 10(b) of the Exchange Act by its acts 

and omissions as alleged in this Complaint. 

248. By virtue of their positions as controlling persons of RH and as a result of 

their own aforementioned conduct, Defendants Friedman and Boone are liable pursuant to 

Section 20(a) of the Exchange Act, jointly and severally with, and to the same extent as, 

the Company is liable under Section 10(b) of the Exchange Act and Rule 10b-5 

promulgated thereunder, to Plaintiffs and the other members of the Class who purchased 

or otherwise acquired RH securities. As detailed above, during the respective times these 

Defendants served as officers and/or directors of RH, each of these Defendants was 

culpable for the material misstatements and omissions made by RH. 

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249. As a direct and proximate result of these Defendants’ conduct, Plaintiffs and 

the other members of the Class suffered damages in connection with their purchase or 

acquisition of RH common stock. 

XII. PRAYER FOR RELIEF 

250. WHEREFORE, Plaintiffs pray for relief and judgment as follows: 

 (a) Declaring the action to be a proper class action pursuant to Rule 23(a) 

and (b)(3) of the Federal Rules of Civil Procedure on behalf of the Class defined herein; 

 (b) Awarding all damages and other remedies available under the 

Exchange Act in favor of Plaintiffs and all members of the Class against Defendants in an 

amount to be proven at trial, including interest thereon; 

 (c) Awarding Plaintiffs and the Class their reasonable costs and expenses 

incurred in this action, including attorneys’ fees and expert fees; and 

 (d) Such other and further relief as the Court may deem just and proper. 

XIII. JURY DEMAND 

251. Plaintiffs demand a trial by jury. 

Dated: June 12, 2017 Respectfully submitted, 

BERNSTEIN LITOWITZ BERGER 

 & GROSSMANN LLP 

/s/ David R. Stickney 

DAVID R. STICKNEY 

DAVID R. STICKNEY (Bar No. 188574) 

davids@blbglaw.com 

BRANDON MARSH (Bar No. 268316) 

brandon.marsh@blbglaw.com 

JENNY E. BARBOSA (Bar No. 292385) 

jenny.barbosa@blbglaw.com 

12481 High Bluff Drive, Suite 300 

San Diego, CA 92130 

Tel: (858) 793-0070 

Fax: (858) 793-0323 

Attorneys for Lead Plaintiffs Public School 

Teachers’ Pension & Retirement Fund of 

Chicago and Arkansas Teacher Retirement 

 System and Lead Counsel for the Class

Case 4:17-cv-00554-YGR Document 45 Filed 06/12/17 Page 93 of 100



CERTIFICATION PURSUANT TO 

THE FEDERAL SECURITIES LAWS 

I, George Hopkins, on behalf of Arkansas Teacher Retirement System ("Arkansas 

Teacher"), hereby certify, as to the claims asserted under the federal securities laws, that: 

1. I am the Executive Director of Arkansas Teacher. I have reviewed a complaint 

filed in this matter. Arkansas Teacher has authorized the filing of this motion for 

appointment as lead plaintiff. 

2. Arkansas Teacher did not purchase the securities that are the subject of this action 

at the direction of counsel or in order to participate in any action arising under the 

federal securities laws. 

3. Arkansas Teacher is willing to serve as a lead plaintiff and representative party on 

behalf of the Class, including providing testimony at deposition and trial, if 

necessary. Arkansas Teacher fully understands the duties and responsibilities of 

the lead plaintiff under the Private Securities Litigation Reform Act, including the 

selection and retention of counsel and overseeing the prosecution of the action for 

the Class. 

4. Arkansas Teacher's transactions in the RH, Inc. securities that are the subject of 

this action are set forth in the chart attached hereto. 

5. Arkansas Teacher has sought to serve and was appointed as a lead plaintiff and 

representative party on behalf of a class in the following actions under the federal 

securities laws filed during the three-year period preceding the date of this 

Certification: 

State-Boston Retirement System v. Infoblox, Inc., No. 14-cv-2500 (N.D. Cal.) 

In re The Bancorp, Inc. Securities Litigation, No. 14-cv-952 (D. Del.) 

In re Comm Vault Systems, Inc. Securities Litigation, No. 14-cv-5628 (D.N.J.) 

Haan v. Five Below, Inc., No. 15-cv-94 (E.D. Pa.) 

In re Virtus Investment Partners, Inc., Securities Litigation, No. 15-cv-1249 (S.D.N.Y.) 

In re Vipshop Holdings Ltd. Securities Litigation, No. 15-cv-3870 (S.D.N.Y.) 

Arkansas Teacher Retirement System v. Insulet Corporation, No. 15-cv-12345 (D. Mass.) 

Kasper v. AAC Holdings, Inc., No. 15-cv-923 (M.D. Tenn.) 

In re Extreme Networks, Inc. Securities Litigation, No. 15-cv-4883 (N.D. Cal.) 

In re Nimble Storage, Inc. Securities Litigation, No. 15-cv-5803 (N.D. Cal.) 

St. Lucie County Fire District Firefighters' Pension Trust Fund v. Stericycle, Inc., 

No. 16-cv-7145 (N.D. Ill.) 

Case 4:17-cv-00554-YGR Document 45 Filed 06/12/17 Page 97 of 100 Case 4:17-cv-00554-YGR Document 12-1 Filed 04/03/17 Page 5 of 8
GeorgL flopkin' 

Executive Director 

Arkansas Teacher Retirement System 

6. Arkansas Teacher has sought to serve as a lead plaintiff and representative party 

on behalf of a class in the following actions under the federal securities laws filed 

during the three-year period preceding the date of this Certification, but either 

withdrew its motions for lead plaintiff or was not appointed lead plaintiff: 

Jahm v. Bankrate, Inc., No. 14-cv-81323 (S.D. Fla.) 

Ong v. Chipotle Mexican Grill, Inc., No. 16-cv-141 (S.D.N.Y.) 

Friedman v. Endo International plc, No. 16-cv-3912 (S.D.N.Y.) 

Knurr v. Orbital ATK, Inc., No. 16-cv-1031 (E.D. Va.) 

7. Arkansas Teacher is currently seeking to serve as a lead plaintiff and 

representative party on behalf of a class in the following action filed under the 

federal securities laws during the three years preceding the date of this 

Certification: 

Oklahoma Law Enforcement Retirement System v. Adeptus Health Inc., 

No. 16-cv-1243 (ED. Tex.) 

8. Arkansas Teacher has served as a representative party on behalf of a class in the 

following action under the federal securities laws filed during the three-year 

period preceding the date of this Certification: 

Horowitz v. SunEdison, Inc., No. 15-cv-1769 (E.D. Mo.) 

9. Arkansas Teacher will not accept any payment for serving as a representative 

party on behalf of the Class beyond Arkansas Teacher's pro rata share of any 

recovery, except such reasonable costs and expenses (including lost wages) 

directly relating to the representation of the Class, as ordered or approved by the 

Court. 

I declare under penalty of perjury that the foregoing is true and correct. Executed 

this') day of in .tt.r , 2017. 

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Arkansas Teacher Retirement System 

Transactions in RH, Inc. (RH) 

Transaction Date Shares Price 

Purchase 6/18/2015 1,700 95.3944 

Purchase 6/19/2015 1,000 96.1328 

Purchase 6/19/2015 700 96.0000 

Purchase 6/22/2015 1,200 96.5751 

Purchase 6/23/2015 1,200 95.6591 

Purchase 6/25/2015 1,100 96.1680 

Purchase 6/29/2015 1,000 96.0718 

Purchase 6/29/2015 1,200 97.9050 

Purchase 7/10/2015 1,200 97.2541 

Purchase 7/15/2015 900 99.4367 

Purchase 7/20/2015 1,300 103.2011 

Purchase 7/21/2015 2,050 102.8617 

Purchase 8/6/2015 775 100.9102 

Purchase 8/19/2015 800 99.3665 

Purchase 8/20/2015 1,025 96.9735 

Purchase 8/24/2015 500 92.0502 

Purchase 8/28/2015 1,100 91.7157 

Purchase 9/3/2015 575 92.9681 

Purchase 9/9/2015 1,000 94.8604 

Purchase 10/1/2015 199 92.0600 

Purchase 10/2/2015 550 92.9462 

Purchase 10/2/2015 826 91.2684 

Purchase 10/5/2015 300 94.2009 

Purchase 10/23/2015 825 99.7556 

Purchase 12/1/2015 625 88.6550 

Purchase 12/11/2015 2,575 86.8393 

Purchase 12/14/2015 1,175 79.9450 

Purchase 12/15/2015 800 80.2215 

Purchase 12/16/2015 525 79.9500 

Purchase 12/16/2015 525 79.5223 

Purchase 12/18/2015 525 82.9300 

Purchase 12/22/2015 500 79.2425 

Purchase 12/29/2015 500 80.5890 

Purchase 1/4/2016 500 77.9856 

Purchase 1/8/2016 1,025 73.5530 

Purchase 1/14/2016 500 63.2183 

Purchase 1/20/2016 800 61.1944 

Purchase 2/8/2016 1,050 51.0700 

Sale 1/7/2016 (1,050) 72.9085 

Sale 3/14/2016 (1,050) 39.5922 

Sale 3/18/2016 (2,625) 37.3939 

Sale 3/18/2016 (2,625) 35.5956 

Sale 4/5/2016 (1,050) 43.5818 

Sale 4/18/2016 (2,100) 44.2142 

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Arkansas Teacher Retirement System 

Transactions in RH, Inc. (RH) 

Transaction Date Shares Price 

Sale 4/21/2016 (525) 44.3668 

Sale 4/26/2016 (2,625) 45.4230 

Sale 4/27/2016 (2,100) 46.0341 

Sale 4/29/2016 (900) 43.3400 

Sale 4/29/2016 (1,725) 43.3052 

Sale 5/3/2016 (2,600) 40.6975 

Sale 5/4/2016 (1,100) 39.2356 

Sale 5/5/2016 (1,050) 38.5100 

Sale 5/6/2016 (2,625) 37.7578 

Sale 5/9/2016 (2,060) 37.8621 

Sale 5/9/2016 (1,046) 37.7890 

Sale 5/9/2016 (1,161) 38.0000 

Sale 5/10/2016 (42) 37.8100 

Sale 5/10/2016 (2,290) 36.7598 

Sale 5/10/2016 (1,255) 37.6005 

Sale 5/11/2016 (1,046) 34.6545 

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