How LuLaRoe Went from a $1 Billion Business to a Magnet for Multi-Million Dollar Lawsuits

How LuLaRoe Went from a $1 Billion Business to a Magnet for Multi-Million Dollar Lawsuits

image: LuLaRoe LuLaRoe is imploding. Despite boasting sales that soared 600 percent last year to around $1 billion and a seller base of more 80,000 individuals in the U.S., alone, the online retailer has been increasingly plagued with a flurry of consumer complaints and ...

October 19, 2017 - By TFL

How LuLaRoe Went from a $1 Billion Business to a Magnet for Multi-Million Dollar Lawsuits

Case Documentation

How LuLaRoe Went from a $1 Billion Business to a Magnet for Multi-Million Dollar Lawsuits

 image: LuLaRoe

image: LuLaRoe

LuLaRoe is imploding. Despite boasting sales that soared 600 percent last year to around $1 billion and a seller base of more 80,000 individuals in the U.S., alone, the online retailer has been increasingly plagued with a flurry of consumer complaints and litigation in recent years. Most of the fallout centers on LuLaRoe’s allegedly defective products, its purportedly fraudulent business practices, and its so-called “pyramid scheme” model.

Operating under a multi-level marketing model, LuLaRoe – which was founded by DeAnne Stidham, who, according to the company’s website, was a single mother of seven children, when she launched LuLaRoe in 2012 – relies on individual sellers (technically independent contractors, as distinct from employees), who sign up to act as representatives or “consultants” (LuLaRoe’s lingo) for the brand, and earn a commission based on their sales.

As noted by CBS earlier this year, “To become a LuLaRoe vendor, new salespeople are required to buy what the company calls ‘onboarding packages’ containing an assortment of the its [garments], at a price of $4,925 to upwards of $9,000. LuLaRoe also recommends that salespeople keep about $20,000 in inventory at any given time and encourages consultants continually to invest in their businesses.”

One of the biggest problems with LuLaRoe, according to no shortage of the company’s consultants? Despite the company’s buyback policy – in connection with which LuLaRoe has vowed to buyback 100 percent of a consultant’s unsold inventory that is in “acceptable condition” if a consultant wishes to cease working with the company – it has ceased to do so. 

In addition to consistent complaints from LuLaRoe consultants, claiming that the company is little more than a “scheme made to look like a real business,” there is also the issue of defective garments, which, according to CBS, LuLaRoe has compounded by “refusing to accept returned merchandise [from consultants] that was torn after being worn or washed once, according to three sales reps. As result, some LuLaRoe salespeople are stuck with thousands of dollars of unsellable merchandise.”

And still yet, CBS’ striking report – which was published in March – shed light on the allegedly toxic culture that runs rampant through the LuLaRoe community. “Sales reps who have publicly raised concerns about LuLaRoe’s business practices have found themselves punished by the company, which refuses to honor their orders,” sources told CBS. “LuLaRoe encourages salespeople to report fellow vendors who speak negatively about it to its compliance department,” others stated.

Two Months, Two Class Actions

It is against this backdrop that in April, LuLaRoe found itself on the receiving end of a second class action lawsuit in just under two months. The first lawsuit – which was filed in February in federal court in Pennsylvania by LuLaRoe consultant Rachael Webster – alleged that LuLaRoe is “improperly and fraudulently add[ing] a surcharge to purchases disguised as a ‘sales tax’ that does not exist.” 

In particular, Webster claims that LuLaRoe “overcharges buyers up to 10.25%” – the highest combined clothing sales tax as of January 2016 – “every time a consultant who lives in a jurisdiction that taxes clothing makes a sale where delivery is made to a jurisdiction that does not.”

In the second suit, which was filed in April in federal court in San Francisco, plaintiffs Julie Dean and Suzanne Jones argue that LuLaRoe has engaged in unfair, unlawful, and fraudulent business practices by advertising and selling defective leggings, prompting thousands of unsatisfied LuLaRoe customers to complain – on Facebook and in other forums – about the brand’s leggings, which are “of such poor quality that holes, tears, and rips appear before wearing, during first use or shortly thereafter.”

That suit further alleged that LuLaRoe has a history of misrepresenting the quality of its products, and of failing to disclose the unfit and defective nature of the products in an “immoral, unethical, oppressive, unscrupulous, or substantially injurious” manner.

As of now, both of those lawsuits are still pending in their respective courts.

“Confidential” and “Defamatory” Information

Representatives for LuLaRoe have categorically denied all of the allegations lodged against the company in the aforementioned lawsuits, and have even recently taken what appear to be early steps in preparation for initiating litigation of its own.

In one of the latest proceedings in this slew of seemingly consistent litigation centering on LulaRoe, the troubled online retailer has taken action against blogger Christina Hinks, who has covered some of the innerworkings of LulaRoe on her blog MommyGyver.

The Southern California-based company – which filed a verified petition for discovery against Hinks in state court in Illinois late last month – is demanding that she “disclose the identity and contact information of” the sources who provided her with what LulaRoe claims to be “confidential” and “defamatory” information about its business.

In a 100+ page filing, LuLaRoe argues that it needs Hinks to turn over all “information of potential defendants who have damaged LLR and its goodwill by providing [her] with LLR’s confidential and proprietary business information, information about LLR and its merchandise, and false derogatory information regarding LLR, much of which [Hinks] posted on her blog.”

LuLaRoe also states in its petition – which it will almost certainly follow up with a formal complaint – that it is working to “protect and safeguard its brand, confidential information and its tens of thousands of independent fashion retailers who rely on LLR’s goodwill and reputation to sell LLR products to retail customers.”

Hinks responded to the petition on her blog, writing: “Many of [the] documents [from which I gathered information] have been publicly shared in various groups for disgruntled consultants and customers. Knowing that you’re IN those groups, and still choose to harass me legally says a lot about what this [legal] document really says.” She continued on to state: “Instead of processing refunds, they’d much rather spend your dime on what looks like a SLAPP-suit-in-the-making in an attempt to harass and intimidate me and the other hundreds of people that are now speaking up – and LOUDLY.”

For the uninitiated, an Anti-SLAPP motion generally consists of a special motion to strike a complaint where the lawsuit arises from activity that is protected by free speech, and thus, aims to protect against “certain non-meritorious lawsuits that are brought to deter common citizens from exercising their political or legal rights or to punish them for doing so.”

A Pyramid Scheme

In addition to attracting media interest for the petition it filed against Hinks, LuLaRoe made headlines last month for another reason: For changing the buyback policy for consultants who wish to cease working with the company.

As LuLaRoe consultant Amanda Goldfarb told NBC, “Instead of 100 percent, they’re giving back 90 percent and charging 10 percent” for all unsold garments from exiting consultants. On top of that, Goldfarb says that LuLaRoe is also imposing “a five percent restocking [fee],” which was not included in their original policy. “So really, you’re getting back 85,” Goldfarb explained.

A representative for LuLaRoe attempted to clarify the company’s buyback policy, saying that the 100 percent buyback “was never intended to be permanent. We decided to end the [100 percent model, which was in effect from April to September 2017] when it became evident that a good number of retailers were abusing the program by returning product in extremely poor condition and providing inaccurate claims, as well as retailers using it as temporary solution to struggles in their business.”

Unsatisfied with LuLaRoe’s “sudden change” in policy, four LuLaRoe consultants have joined to file a class action lawsuit against the company, per Yahoo. This time around, the complaint – which was filed on October 13 in in California state court – sets forth claims of unfair competition and breach of contract, among others.

The plaintiffs, Stella Lemberg, Jeni Laurence, Amandra Bluder, and Carissa Stuckart, claim that LuLaRoe has run afoul of the law in rescinding its 100 percent buyback policy. According to their complaint – which alleges that LuLaRoe is little more than a “pyramid scheme” – “Consultants were encouraged to max-out their credit cards with inventory purchases, all of which would be refunded at 100 percent, plus free shipping, should the consultants decide to stop selling for LuLaRoe.” The plaintiffs allege that has not turned out to be true.

The platintiffs – who have asked the court to certify their class action suit to enable thousands of other “similarly situated” LuLaRoe consultants, both past and present, to join in the suit and share in the ultimate settlement amount – also claim that “LuLaRoe holds itself out to be champions of women with children, seeking financial freedom by working from home.” They claim that could not be further from the truth. 

In addition to their recently filed lawsuit, a petition has also begun circulating, calling on LuLaRoe to honor its original 100 percent buyback terms. As of now, the petition, which was started last month by Florida-based consultant Alana Tanglier, boasts 12,321 signatures. 

One particularly striking comment in connection with the petition, “Lularoe has to learn that you can’t screw all the consultants that have made you what you are today!” This, my friends, appears as though it may be the beginning of the very end if LuLaRoe does not change its ways. 

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