Articles Tagged with LuLaRoe Lawsuit

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Multi-level marketing company LuLaRoe is going through rocky times. Not only is the company’s number of consultants down to fewer than 35,000 after reaching a high of 77,000 in February 2017, but also the organization is facing a massive lawsuit from its chief supplier, Providence Industries.

1504001-Gavel-Money-2The lawsuit was filed in November 2017, with the plaintiff stating that LuLaRoe had failed to pay its bills since May. Initially, plaintiffs sought damages of $49 million based on $34 million in products that Providence sent to LuLaRoe for which they were never paid. The rest of the amount was for storage of other products at LuLaRoe’s request.

Now, Providence has increased their demand to $63 million as the lawsuit drags on. In new filings, they allege that LuLaRoe is quietly liquidating goods. Providence is asking for a writ of attachment to prevent this. Their initial request for such a writ was denied months ago, but this one is supported by the testimony of nine former LuLaRoe consultants, each of whom alleges that they’ve been waiting for months to receive refunds on returned products after giving up their positions as consultants.

To further support their argument, Providence says that the defendant has a history of not paying their bills and that the organization is likely insolvent. LuLaRoe has not commented on these allegations, but Providence asserts that the company’s founders are hiding financial assets in a series of shell companies. Based on comments made by the founders, Providence believes that they may try to leave the country with the funds.

While LuLaRoe makes no comment on the pending litigation, they do appear to acknowledge that things haven’t gone well in the past. Recent social media videos posted by the founders show them talking about a history of flawed products and how they are entering an era of “LuLaRoe 2.0.” They insist that if consultants stay with them, they will see tremendous financial gains.

A business attorney may be able to provide the needed guidance for most new companies. Many potential business problems can be avoided by using an experienced business attorney during early planning and strategizing.

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Where is the dividing line between an efficient money-making model and a pyramid scheme? That’s the question that may be answered in a new lawsuit filed against clothing company LuLaRoe.

Pyramid-Scheme-122597965-300x225LuLaRoe began operations in 2012. They have 80,000 “distributors,” most of whom are millennial moms. With more than $1 billion in sales in 2016, the company is on track to double that number in 2017. Their product consists of brightly colored leggings, shirts and dresses.

Unlike traditional retailers, LuLaRoe does not sell its products in brick-and-mortar stores. Instead, they rely upon distributors or consultants who buy the products and then hope to turn a profit when those products are sold to consumers.

Getting started as a consultant isn’t cheap. A basic package of approximately 70 leggings in adult sizes, 10 leggings in “tween” sizes and 25 dresses costs $2,074. Budding entrepreneurs could opt for a larger package containing more than 500 pieces for $9,058.25.

Three consultants from Sacramento County say they were “doomed from the start.” In their lawsuit, they claim that LuLaRoe bombarded them with demands to “buy more/sell more.” Using aggressive pressure tactics, consultants were encouraged to have at least $20,000 worth of merchandise on hand. Even if existing inventory wasn’t moving, the distributors were continually exhorted to purchase more.

The consultants say in their complaint that the company used unfair and sometimes outrageous ploys to get them to buy more inventory. LuLaRoe representatives allegedly counseled distributors to take out loans and use credit cards to purchase more product. One consultant said that she was told to sell her breast milk to raise money for buying more LuLaRoe product to sell.

In addition to accusing LuLaRoe’s principals of running a pyramid scheme, the lawsuit argues that the company violates the federal RICO act. The consultants also say that bonuses promised by the company for recruiting new distributors and buying more merchandise never materialized.

Working with a qualified business attorney helps entrepreneurs to avoid costly and time-consuming litigation. With legal advice, LuLaRoe may have been able to focus on profits without allegedly running afoul of the law.

Feel free to contact me, Richard Oppenheim with your related legal questions. I may be reached at 818-461-8500 or by using the “Contact Us” box in the right column.