Estée Lauder Seeks Injunction to Remove Founder of Hugely Popular Canadian Cosmetics Company Deciem

Last year, global cosmetics giant Estée Lauder purchased a stake in Deciem, then a small Canadian cosmetics brand which became one of the fastest growing and hottest names in the beauty industry. This month, lawyers for Estée Lauder went to court to seek an injunction to remove Brandon Truaxe, the founder of Deciem, from managing the company.

The Deciem Story

Established in 2013, Deciem is headquartered in Toronto, and bills itself as “The Abnormal Beauty Company”.

The company makes more than 300 skin care and beauty products under 10 different product lines sold online and in 24 brick and mortar stores in Toronto, Vancouver, as well as five other countries. 18 additional stores are under construction. Online sales are Deciem’s largest revenue source.

The company is best known for the massively popular The Ordinary skin care line, a high-quality line of products that is sold at a fraction of the cost of its competitors. The Ordinary prices their products at between $5 and $17 whereas similar products sold by other skin care companies range more from $20-upwards of $100.

The Ordinary oils, serums and creams are packaged in plain, utilitarian bottles reminiscent of pharmaceutical products, many complete with droppers. Scientific names such as “Granactive Retinoid in Squalane 2%” add to the apothecary feel.

“Revolutionary” Approach to Skin Care Products

Deciem has certainly been one of the most disruptive operators in the beauty industry, largely due to its no-frills approach and highly accessible pricing.

Industry experts view the company’s pricing as “revolutionary” for skin care products, calling it “unheard of”. One expert told CBC News that not even drug store products are priced like Deciem’s The Ordinary line, and that beauty products tend to be marked up to 10 times what they cost to make because of packaging, marketing, and other costs. This has generally worked for beauty companies in the past as customers tend to believe that the more expensive a product is, the better it works.

Deciem was on track to make $300 million in 2018.

In 2017, Estée Lauder purchased a reported 28% state in Deciem, hoping to get in on the company’s explosive growth potential.

Controversial Actions by Truaxe

Beginning in early 2018, a series of events brought controversy to the Deciem brand. In February, Truaxe fired his co-CEO and close friend Nicola Kilner. His CFO resigned a short time later. Both departures were widely covered in both beauty industry and mainstream news.

The same month, Truaxe announced, via Deciem’s corporate Instagram, that he was cancelling the company’s marketing program and that he would be personally taking over the company’s social media. In the weeks and months following this announcement he posted an increasingly strange series of Instagram videos and photos. These included a photo of what appeared to be a dead animal captioned with a pledge against animal testing, a video in which Truaxe is almost incoherent talking about his hotel mini bar and pills, and another video in which Truaxe insults critics and detractors.

Followers who were regularly seeing the posts began to express concerns for Truaxe’s mental health and possible substance abuse. The media began writing more and more stories about the “Deciem drama” and about the bizarre behaviour of the founder of a major brand.

The strange postings culminated with a video posted in early October 2018, in which Truaxe announced that he would be closing all of Deciem’s stores.

Estée Lauder’s Motion for Injunction

Estée Lauder’s move to obtain an injunction came in the wake of this last announcement. They sought to remove Truaxe from Deciem and name Nicola Kilner (who returned to the company after Truaxe fired her) as the sole CEO. They also sought to ensure that Truaxe be prohibited from hirings or firings, and from issuing statements of posting on any of Deciem’s social media accounts.

The company cited the oppression remedy under the Canada Business Corporations Act (CBCA) arguing that Truaxe has not complied with the unanimous shareholders agreement.

The CBCA outlines rights and responsibilities of various stakeholders in a corporation and provides a number of remedies, including the oppression remedy, that shareholders can use where there is oppressive or unfairly prejudicial conduct.

In response to Estée Lauder’s application, Truaxe posted a copy of it and emails from its lawyer on Instagram. In a subsequent text to CBC News, Truaxe suggested that he was fine with Estée Lauder’s decision. “I like it,” he replied, when asked for his thoughts on Estée Lauder’s attempt to remove him.

We will continue to follow developments in this matter and will provide updates as they become available. In the meantime, if you have any questions about business and partnership disputes, or remedies available in such disputes including injunctions, oppression remedies, or derivative actions, contact Financial Litigation.

We are a commercial litigation boutique that handles time-sensitive legal disputes on behalf of shareholders, creditors, and other individual stakeholders that have suffered losses as the result of improper conduct by corporate agents. We are ready to step in with insightful advice at any stage, whether you have questions about a potential problem, or are already facing a legal dispute. We can also defend these claims. We always answer our clients’ calls promptly and handle issues as soon as they arise. Contact us by calling 416-769-4107 x1, or online to schedule a consultation.