By Jonathan Stempel
NEW YORK, April 1 (Reuters) - A federal judge dismissed a lawsuit accusing Peloton Interactive PTON.O of intentionally concealing quality control and safety problems with its exercise bikes, including allegations it told factory workers to cover up rust on seat frames prior to shipping, leading to a costly recall and a declining share price.
In a 54-page decision issued late Tuesday night, U.S. District Judge Margo Brodie in Brooklyn, New York said shareholders didn't show Peloton defrauded them with several assurances it was focused on safety, putting "members first" and making the "best equipment" despite knowing prospects for a recall were increasing.
Brodie also said the New York-based at-home fitness company cannot be liable for initially underestimating the cost to recall all 2.2 million original model bikes sold in the United States, or allegedly concealing 35 reports of broken seat posts prior to the voluntary May 2023 recall.
"Even assuming plaintiffs are correct that defendants knew about those complaints, they do not support plaintiffs’ argument that those reports would lead to a recall of every [original] bike Peloton sold" between January 2018 and May 2023, Brodie wrote.
Lawyers for the shareholders did not immediately respond to requests for comment on Wednesday. Peloton and its lawyers did not immediately respond to similar requests.
The alleged coverup of bike corrosion was known internally at Peloton as "Project Tinman," according to court papers and a media report.
Peloton's products include bikes, treadmills, and live and on-demand classes. The company has tried to restore demand after a surge during the pandemic subsided. Its shares have fallen approximately 97% from their January 2021 peak.
(Reporting by Jonathan Stempel in New York; Editing by Kirsten Donovan)
((jon.stempel@thomsonreuters.com ; +1 646 223 6317; Reuters Messaging: jon.stempel.thomsonreuters.com@reuters.net /))
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