Chris Jacobs still hasn’t given up on her quest to get rid of her LuLaRoe pants. Auburn-based former LuLaRoe vendor Jacobs blamed the gaudy prints she was provided for her lack of success in selling to her core client group of friends and family. She wasn’t ready to give up on LuLaRoe just yet, so she went to a physical warehouse sale to hand-select the inventory she knew would be most popular with her consumers. Despite spending $1,500 on the trip, she was unable to make a profit by selling or returning any of the unsold stock.
As a result of that, she realized it was time to leave. All of us are stuck with merchandise that is only worth a few cents, Jacobs added. The items she would purchase would cost her between $600 and $1,000 each. To get the wholesale price of $10.50 for each pair, retailers had to purchase a minimum of 30 units. Then, they’d try to resell them for $30 each, a price somewhere between $25 and $30.
Three Sacramento County women sued LuLaRoe, a multilevel marketing corporation that sells women’s clothes and patterned leggings, in a $1 billion class action lawsuit in 2017. DeAnna Brady and her then-husband, Mark Stidham, established LuLaRoe in 2012. Although the company’s headquarters are in Corona, California, they have representatives all throughout the United States. Since 2016, more than fifty lawsuits have been filed against the corporation.
Those who live in or around Sacramento, California, filed their case that year (October 2017). Last year, Amazon Studios launched a documentary miniseries called “LuLaRich,” which explored allegations that LuLaRoe is a pyramid scheme and brought even more attention to the company’s allegedly unfair and unethical business methods.
With more than five hundred current plaintiffs, the California complaint alleges that LuLaRoe broke the Seller-Assisted Marketing Plan Act (SAMP Act), which controls potentially harmful business opportunities in the Golden State. The company is accused of operating a pyramid scam or “endless chain scheme,” according to the complaint. The lawsuit was originally filed in Superior Court in Sacramento County, but it was transferred to Riverside County, which is home to LuLaRoe.
Any bids made from or within California are subject to the act, so even out-of-state sellers might potentially file a claim against LuLaRoe. Consultants failed despite their full dedication and extensive work. The complaint claims that the plaintiffs’ efforts were futile because they were doomed from the outset.
According to the website of a current retailer, LuLaRoe has transitioned from referring to its sales force as “consultants” to “retailers” because it now works with social retailers rather than direct sellers. In a statement released after the complaint was initially filed in 2017, LuLaRoe called the claims made against the company “baseless, factually wrong, and ignorant.” In response to The Bee’s request into the charges in the lawsuit, the company did not provide a comment.
If Jacobs had known about the case when she joined LuLaRoe in March 2017, she probably wouldn’t have done so. As a consultant, she claimed she never earned a profit and often lost money. Two years later, she decided to leave the company.
How Lularoe Avoids Litigation for Complaints?
Since LuLaRoe and other multilevel marketing organizations typically have a “mandatory arbitration” clause in their contracts with independent distributors like Jacobs, any legal problems between the parties are resolved by an impartial arbitrator rather than in court. If a retailer wants to take legal action, it must first go through mandatory arbitration. The administrative costs of an arbitration hearing are usually split evenly between the parties. The expense of mediation alone, before arbitration ever begins, can range from $5,000 to $7,000. An additional $10,000 may be awarded in the arbitration.
Individual claims are required if arbitration is used to prevent a class action lawsuit. Attorney Joshua Watson of the Arnold Law Firm in Sacramento, California, who brought the California lawsuit, claims that arbitration is routine practice for many businesses today.
He also noted that many attorneys and judges had been wary of the procedure because it was being conducted outside of civil court. It is possible that the cost of legal representation will exceed any monetary recovery, regardless of the outcome of the case. However, in 2017, the American Arbitration Association established a policy that would require it to charge “independent contractors,” like the LuLaRoe dealers, the same fees for arbitration as it does for employees who file a complaint against their employer. That is to say, if twenty-five or more contractors file suit over the same issue, the organization will pool their claims and levy $200 total, $100 upfront, and $100 for the arbitration hearing if the case is not settled quickly. LuLaRoe agrees to cover the remaining arbitration fees.
If the shops succeed in the preliminary stages of arbitration and the LuLaRoe contracts are voided, which Watson claims violates the SAMP Act, the retailers may be reimbursed for their legal fees and the case may be remanded to the Superior Court for further group action. According to Watson, the next step is to have the contracts thrown out and go back to court. Watson thinks that LuLaRoe is depending on the fact that many people will give up on seeking legal remedies once they reach the arbitration stage. The Bee tried to reach out to the former LuLaRoe sellers who are plaintiffs in the lawsuit, but the plaintiffs declined to comment while the case is pending. Everyone seeks arbitration, Watson observed, and then “they stop.” The dispute was taken to arbitration, and we continued fighting.
The corporation has been involved in a number of similar lawsuits over the previous few years. Watson anticipates a resolution to the lawsuit in court within the next year, and he is counting on the arbitration process to wrap up by then. LuLaRoe has persisted despite this and the documentary’s subsequent popularity, with the company claiming to have 17,000 retailers. Sacramento ex-consultant Deanna Vargas pondered joining the case but ultimately decided she had left the company before things could have gotten worse for her.
She became a consultant in 2015, while LuLaRoe was still in its infancy, and was able to make enough money to pay for her wedding with the proceeds. She found it more challenging to move products as the company expanded because there were now too many competitors offering consulting services in her region. After leaving her job, she attempted to sell her remaining stock but ultimately gave most of it away as donations. Some of the garments were taken by her in-laws to be donated to families in Mexico. I didn’t want to get into debt for that venture,” Vargas explained.
A Win for the Leggings Sellers
In 2019, the Attorney General of Washington State filed a lawsuit against LuLaRoe and several of its executives, alleging that the company made false and misleading statements about the potential earnings of its independent retailers. In 2021, LuLaRoe will pay $4.75 million to around 3,000 Washington-based consultants who were duped by the company. Attorney General Bob Ferguson made a statement alleging that “LuLaRoe deceived Washingtonians into buying into its pyramid scheme with deceptive claims and false promises.”
LuLaRoe was also ordered to be more forthcoming with retailers in the future. For instance, the corporation is now obligated to make publicly available on its website an income disclosure statement that fairly and properly displays retailer income possibilities. Despite the lawsuit settlement, LuLaRoe’s founders have not backed down from their stubborn stance. Considering LuLaRoe’s legal fees, it was reasonable for them to pay the settlement amount we reached.
Mark Stidham, CEO of LuLaRoe, said in a press release that the company settled because “even though we believed we would win the case eventually – whether at trial or on a subsequent appeal – the expense would have been enormous and the time senior management would have had to devote to the litigation during the trial would have been a distraction from our business.”
As the state of Washington initiated the lawsuit, the office had access to sufficient funding and support to see it through. Though the state of California’s attorney general’s office has received several complaints about this issue, it has never pursued legal action. Therefore, the former sellers were on their own in their quest for redress. Becca Peters, a Washington state resident, and the amateur investigator has been keeping up with the LuLaRoe lawsuits and tweeting about them. “That’s the key distinction that very few AGs (attorney generals) have had any interest in any of this,” she said.
California’s Failure to Hold Mlms Accountable
Professor of marketing at the College of New Jersey’s Business School, Bill Keep, claims that despite possessing an anti-pyramid scheme law, California has persistently failed to enforce laws against multilevel marketing organizations. Herbalife, a manufacturer of nutritional supplements, paid to end legal action brought by the California Attorney General’s Office in 1986. The terms of the agreement stated that the corporation would no longer be allowed to make “false or misleading assertions” about the potential earnings of distributors or make false or exaggerated claims about the quality of its products. The firm never achieved complete compliance, but it kept expanding, reaching a market cap of $359.8 million by 2005.
In 2015, attorneys in the attorney general’s consumer law division had reason to believe that Herbalife had disregarded the 1986 state directive. The Federal Trade Commission conducted its own inquiry and found probable cause for further examination. However, former California Attorney General Kamala Harris did not provide a justification for her decision not to pursue Herbalife. ‘It seems to me that California is not interested in executing its own laws,’ Keep added. Today in LULAROE As a result of the numerous lawsuits filed against LuLaRoe, the company has made certain adjustments to disassociate itself from the pyramid scheme perception.
The company has restructured its pay and reduced startup costs by 90%. In addition, there is a complete Income Disclosure Statement posted online every year. According to the most recent data (2021), retailers’ average gross profit was $10,073.41, while the median was $1,444.65. Half of the shops made between $1,000 and $5,000, with only 6% making above $75,000 (study).
According to Watson, LuLaRoe no longer gives retailers a bonus for signing up new sellers for the program; instead, they receive a percentage of the sales earned by the sellers on their team. Peters also pointed out that the company has made its online selling platform more convenient by providing stock photographs that sellers can use to market their products without having to take their own. Peters is certain that LuLaRoe will continue to attract new members, both as a hobby and as a source of income, despite the lawsuits and recent exposure of the company’s unethical and unfair tactics. According to Peters, “their consultants are their biggest consumers at this moment.”
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