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Legal woes continue for multi-level marketing women's clothing company LuLaRoe

By John Severance | Apr 19, 2019

LOS ANGELES (Legal Newsline) – Legal problems continue for LuLaRoe, a multi-level marketing company that sells women's clothing.

Based in Corona, California, the company was founded in 2012 by DeAnne Brady and her husband, Mark Stidham. During the past couple of years, legal turmoil has engulfed the company even though LuLaRoe amassed $2.3 billion in sales in 2017, according to Business Insider.

In a suit filed in the U.S. District Court for the Central District of California on March 8, lead plaintiff Tabitha Sperring alleges "LuLaRoe is an unlawful, fraudulent pyramid scheme which preys on stay-at-home mothers, promising them they can generate substantial income while still being able to spend time at home with their families."

Another complaint against the company came in October 2017. Listed plaintiffs included Stella Lemberg, Jeni Laurence, Amanda Bluder and Carissa Stockart, who were all considered to be consultants for the company. Defendants in the case were LuLaRoe, Brady and Stidham.

In his ruling in the Lemberg case, Judge Andre Birotte Jr. of the U.S. District Court of the Central District of California wrote in April 2018, "the arbitration provision in the policies and procedures is a valid and enforceable agreement to arbitrate plaintiffs’ claims. In consideration of a valid agreement for arbitration, the fact that the parties do not contest that the scope of the agreement covers the dispute at issue, that the non-signatories are able to enforce the arbitration provision under equitable estoppel, and the FAA’s policy favoring the resolution of disputes through arbitration, the court finds plaintiffs must arbitrate their claims.

"The issue of whether plaintiffs can arbitrate their claims on a class-wide basis, however, is a question for the arbitrator. Thus, defendant’s motion to compel plaintiffs to individually arbitrate and to dismiss or stay this action is hereby granted in part and denied in part. The court hereby stays this action pending the arbitration of plaintiffs’ claims.’’

Birotte's ruling states that the plaintiffs’ claims were a result of LLR’s purported “multi-level marketing scheme, whereby LLR created a ‘direct-buyer’ system so consumers must go through representatives or consultants to buy clothing products.”

LLR required its consultants to pay $5,000 in startup fees, which was used to start its clothing inventory and other promotional materials. 

“To be a consultant, however, [LLR] requires an initial expenditure upwards of $5,000 for a start-up inventory kit of clothing and other promotional materials,” Birotte's ruling states.

Defendants also allegedly lured its consultants to buy more inventory and even promised its sales people it could cancel their agreements and be refunded 100 percent with no strings attached.

Plaintiffs, though, claim the defendants reneged on the deal.

“Instead of honoring its 100 percent buyback and free shipping agreement, LLR is not providing free shipping and is honoring at most a 90 percent refund thereby cheating plaintiffs and the class out of thousands of dollars," Lemberg's original suit states.

The plaintiffs also alleged claims for violating California’s unfair competition law, the state’s advertising law and breach of contract.

The plaintiffs filed an amended complaint in January 2018 claiming there were even more plaintiffs and alleged LLR ran an illegal pyramid scheme. Brady and Stidham also were added as defendants.

An earlier lawsuit filed in October 2017 in the Central District Court of California was brought by consultants who alleged they lost thousands to the pyramid scheme. It was later voluntarily withdrawn in January 2018 without prejudice.

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