LuLaRoe Class Action Lawsuit Filed Over Buyback Program

There has been a LuLaRoe Twitter storm that has been raging for some time about the changes they made to their Buyback program. Now a class action lawsuit has been filed over this Buyback program.

In April 2017, LuLaRoe promised consultants they could cancel their agreements with LuLaRoe and be refunded 100% of the wholesale amount of inventory purchased, including shipping charges. The 100% refund had no conditions or exceptions attached. To further induce people to join their business opportunity, LuLaRoe uniformly promised that the 100% buyback policy would never expire:

Today, we would like to provide clarity regarding the 100% Buy Back on Inventory policy. This policy does not have an expiration date, nor does it have a required timeframe in which the product should have been purchased in. – Source build.mylularoe.com

There is one little problem.  According to the lawsuit, they did change their Buyback program.

Here are the details of the class action lawsuit:

This case arises out of a multi-level marketing scheme, whereby LuLaRoe created a “direct-buyer” system so consumers must go through “representatives” or “consultants” to buy LuLaRoe’s clothing products. To be a consultant, however, LuLaRoe requires an initial expenditure upwards of $5,000 for a start-up inventory kit of clothing and other promotional materials. As bait to lure consultants to sign up and/or to purchase more inventory, in April 2017, LuLaRoe promised consultants they could cancel their agreements with LuLaRoe and be refunded 100% of the wholesale amount of inventory purchased, including shipping charges. The 100% refund had no conditions or exceptions attached. To further induce consultants, LuLaRoe uniformly promised that the 100% buyback policy would never expire:

Today, we would like to provide clarity regarding the 100% Buy Back on Inventory policy. This policy does not have an expiration date, nor does it have a required timeframe in which the product should have been purchased in. – Source build.mylularoe.com

Unfortunately, overnight on September 13, 2017, LuLaRoe reneged on its end of the bargain. Instead of honoring its 100% buyback and free shipping agreement, LuLaRoe is not providing fee shipping and is honoring at most a 90% refund and even then it comes with numerous exceptions, thereby cheating Plaintiffs and the Class out of thousands of dollars.

FACTUAL ALLEGATIONS
Brief History and Rapid Growth of LuLaRoe

On May 1, 2013, LuLaRoe was incorporated. It is a clothing sales organization based in Corona, California, founded by DeAnne Brady and Mark Stidham. LuLaRoe has approximately 33 varieties of knit shirts, skirts, dresses, and leggings ranging from $25 to $75 per item.

LuLaRoe is in the business of advertising, marketing, producing, manufacturing, and selling clothing such as knit shirts, skirts, dresses, and leggings through individual consultants, also called “representatives” or “retailers” (referred to hereafter as “Consultants”), such as Plaintiffs and the Class. LuLaRoe is a classic multi-level marketing scheme. LuLaRoe signs up Consultants to sell its products and to sign up a Consultant’s own network of Consultants. Many Consultants are women with children, who sell LuLaRoe products online through social media and to friends/contacts at “pop up” parties the Consultant organizes. On top of the money earned from product sales, Consultants also receive 5% of each new recruit’s wholesale product purchases, according to details in the LuLaRoe compensation package.

LuLaRoe holds itself out to be champions of women with children, seeking financial freedom by working from home. Founded in 2012 by DeAnne Brady and her husband, and incorporated in 2013, Defendants claim that “LuLaRoe exists to provide an opportunity for people to create freedom by selling comfortable, affordable, stylish clothing, and offering its Retailers the independence to set their own pace and schedule. This creates the time to spend with those closest to them, the very thing DeAnne had once desired for herself!”

LuLaRoe’s mission statement is: “Where through fashion we create freedom, serve others, and strengthen families. A place where lives are being blessed and dreams achieved through love, purpose, confidence, trust, and growth.” LuLaRoe also claims that the “mission at LuLaRoe is to bless lives and strengthen families and we can help facilitate this though our HAPPINESS POLICY!” LuLaRoe promises women part time work for full time pay, allowing them the freedom to earn a living and still enjoy time with their families.

Plaintiffs and the Class were solicited by Defendants to conduct direct sales on behalf of LuLaRoe. LuLaRoe required and continues to require Consultants to sign a “LuLaRoe Independent Consultant Program Application and Agreement” and to purchase clothing from LuLaRoe at wholesale, typically resulting in an initial inventory investment of $5,000 to $8,000 in advance of sales.

LuLaRoe did not and does not provide Consultants with a catalog or online shopping opportunities. Rather, Consultants create their own “pop up” shops through social media (such as Facebook) or in person. The burden of creating sales incentives, collecting payment from customers, and recouping the initial investment, as well as operating costs, are all the responsibility of the Consultants.

If a Consultant brings in additional Consultants, she is elevated to “Sponsor Status,” but must maintain additional inventory requirements monthly. If a Consultant brings in ten or more additional Consultants, she is elevated to “Trainer” status, if she has:

[A] Personal Volume of 250 Pieces each month, have at least three Personally Sponsored Fashion Consultants, and a minimum of ten Fashion Consultants on your Team with a total Group Volume of 1,750 Pieces each month. Your own Orders do not count towards your Group Volume. For each Personally Sponsored Fashion Consultant who Orders at least 175 Pieces each month, your Personal Volume requirement is reduced by 50 Pieces each month, up to a maximum of three times, or 150 Pieces each month, potentially resulting in a minimum of 100 Pieces required to be Ordered by you for the month.

To achieve “Coach” or “Mentor” status, and earn additional compensation, Consultants need to recruit more Consultants and maintain higher levels of inventory monthly. Id.

“Part of LuLaRoe’s appeal is built-in product scarcity. The company produces no more than 2,500 pieces in any one fabric print. So no two fashion Consultants receive the same mix of garments and prints. That drives prices up online for the rarer or more desirable prints by creating a treasure hunt atmosphere.”8 According to Defendants’ website:

LuLaRoe exists to provide an opportunity for people to create freedom by selling comfortable, affordable, stylish LuLaRoe clothing, and offering its Retailers the independence to set their own pace and schedule.

Currently there are approximately 70,000 LuLaRoe Consultants nationwide. LuLaRoe is still a very young company compared to other direct sale companies. The potential for growth is truly astounding. It is a great time to join this amazing company!

Other sources indicate that LuLaRoe currently has over 80,000 Consultants. In 2016, it was reported that LuLaRoe was on track to hit $1 billion in sales and was growing at an average rate of 25% per month for approximately 24 months.

LuLaRoe Announces 100% Refund Policy

In April 2017, LuLaRoe announced that any Consultant who wished to terminate their business with Defendants could return their inventory for a 100% buyback and LuLaRoe would pay the shipping costs. Consultants and the public were assured through a variety of written and oral communications that this policy was never going to expire. See, e.g., “LuLaRoe isn’t going anywhere and neither is the Contract Cancelation 100% buy-back program.”

LuLaRoe repeatedly promised the Consultants that they could, at any time, terminate their Consultant status and return unsold clothing for a full refund, with LuLaRoe to pay the associated shipping costs. Specifically, LuLaRoe made these representations in direct communications with Consultants, during Consultant training seminars, online, in emails, in brochures, and in advertisements to Consultants and the public. For example, in June of 2017, LuLaRoe sent at least two emails to Consultants stating:

INDEPENDENT FASHION RETAILERS, WHO WISH TO CANCEL THEIR RETAILER AGREEMENT, WILL BE REFUNDED 100% OF THE WHOLESALE AMOUNT. How AWESOME is that? On top of that, LuLaRoe will also cover your shipping by sending you shipping labels!

(Emphasis in original.)

As another example, on or about June 30, 2017, LuLaRoe posted the following notice on its website:

Today, we would like to provide clarity regarding the 100% Buy Back on Inventory policy. This policy does not have an expiration date, nor does it have a required timeframe in which the product should have been purchased in [sic]. The only qualification for this policy, is that products returned are required to be LuLaRoe products and must have been purchased through LuLaRoe. Click here to find more information on the 100% Buy Back on Inventory policy!

Defendants advised Consultants to use the 100% buyback and free shipping policy to recruit more Consultants for LuLaRoe. The no-risk sales approach was used to encourage prospective Consultants to sign up and order as much inventory as possible. And it worked. Consultants, such as Plaintiffs Bluder and Laurence, recruited Consultants based upon this policy.

Consultants were also encouraged to max-out their credit cards with inventory purchases, all of which would be refunded at 100%, plus free shipping, should the Consultants decide to stop selling for LuLaRoe.

Despite LuLaRoe’s uniform and repeated promises in its communications, e-mail correspondence, marketing materials, advertisements, seminars, and contracts with Plaintiffs and Class, LuLaRoe’s return and shipping policy differs materially from what is represented. A Plaintiff/member of the Class who decides that he or she is no longer interested in being a Consultant for LuLaRoe is, in reality, unable to return LuLaRoe clothes for a full refund and is actually required to pay for shipping, an expense that will not be reimbursed.

In many cases, Consultants are unable to return clothes at all and/or receive no refund whatsoever from LuLaRoe.

What is worse, for Consultants to cancel their status as Consultants and receive full reimbursement and free return shipping labels, they must agree to immediately cease all sales of their inventory.

Once the Consultants agree to stop selling their inventory, their cancellation is confirmed and they are removed from Consultant status. This means they cannot access the Consultant information on LuLaRoe’s website and no longer receive communications from LuLaRoe to active Consultants.

The canceled Consultants then receive a confirmation that their cancelation has been processed and are instructed to wait for a Return Authorization Number (“RA” number), which is needed to return inventory to LuLaRoe, and receive return shipping labels.

However, in most instances, such as with Plaintiffs, LuLaRoe does not provide RA numbers, nor does it send the shipping labels, and the canceled Consultants are left with thousands of dollars of inventory they cannot return and cannot sell.

The few Consultants who do receive an RA number send back their inventory only to have LuLaRoe either: (1) claim that the inventory was never received, (2) “reject” some or all the inventory for refund (and donate the rejected items to a charity), and/or (3) provide only a partial refund for select items of inventory.

Consultants are unable to communicate with LuLaRoe when they discover this bait-and-switch has occurred, many remaining on hold for up to five hours only to be disconnected.

LuLaRoe Changes Its 100% Refund Policy Overnight, Retroactively

On or about September 13, 2017, LuLaRoe adopted the following policy, applying it retroactively to the Consultants, and thereby cheating the Consultants out of thousands of dollars:

  • The items being returned must have been personally purchased by the Independent Fashion Retailer from LLR (purchases from other Independent Fashion Retailers or third parties are not subject to refund);
  • The items must be in Resalable condition (see Definition of “Resalable” below); and
  • The items must have been purchased from LLR within one year prior to the date of cancellation.

Upon receipt of the Resalable products and sales aids, the Independent Fashion Retailer will be reimbursed 90% of the net cost of the original purchase price(s). Shipping and handling charges incurred by an Independent Fashion Retailer when the products or sales aids were purchased, and return shipping fees, will not be refunded. If the purchases were made through a credit card, the refund will be credited back to the same account. If an Independent Fashion Retailer was paid a bonus based on a product(s) that he or she purchased, and such product(s) is subsequently returned for a refund, the bonus that was paid to the Independent Fashion Retailer based on that product purchase will be deducted from the amount of the refund.

Products and sales aids shall be deemed “Resalable” if each of the following elements is satisfied: 1) they are unworn, unwashed, folded with hang tags and in original packaging; 2) packaging and labeling has not been altered or damaged; 3) they are in a condition such that it is a commercially reasonable practice within the trade to sell the merchandise at full price; and 4) they are returned to LuLaRoe within one year from the date of purchase. Any merchandise that is clearly identified at the time of sale as non-returnable, discontinued, or as a seasonal item, shall not be Resalable. Items that are returned that are not Resalable will be donated to a charity selected by LuLaRoe and no refund or exchange will be issued.

LuLaRoe’s deceptive practices are uniform across the Class, as described in the following publications:

(a) “LuLaRoe Changes Return Policy, Costing Consultants Thousands. The change from a 100 percent guarantee to a 90 percent guarantee was announced Wednesday, effective immediately.”

(b) “LuLaRoe abruptly changes return policy; Consultants say they are out thousands.”

(c) “LuLaRoe Just Changed Its Return Policy And People Are Pissed.”

Consultants are prevented from returning inventory and/or after they have returned their inventory, LuLaRoe self-determines that some items are nonrefundable, with no appeal process or other recourse for the Consultants. Once LuLaRoe decides that an item(s) are non-fundable, whether it is because of the new one-year return policy or for some other reason, LuLaRoe refuses to return the items to the Consultants. Rather, LuLaRoe donates those items of clothing, and the Consultants are deprived of both the product and any compensation for the product.

People that are part of this class action:

All persons residing in the United States who were contracted with Defendants as Consultants at any time during the period of April 1, 2017 to September 13, 2017 and either: (1) attempted to return inventory to LuLaRoe under the 100% Buyback program and were not given a full 100% refund and free shipping; or (2) purchased additional inventory from LuLaRoe between April 1, 2017 and September 13, 2017 and now will not be given a 100% refund and free shipping from LuLaRoe.

– Source Stella Lemberg et al v. LuLaRoe, LLC et al