Legal issues
In early 2017, a class-action lawsuit was filed against LuLaRoe by customers, who complained that the firm's proprietary point-of-sale software incorrectly calculated sales tax rates on interstate sales, and in jurisdictions that do not charge sales tax on clothing. These complaints, combined with complaints over poor quality, led to the company's Better Business Bureau (BBB) rating being downgraded to "F" in January 2017.[5][9]
In October 2017, a class-action lawsuit filed in California accused LuLaRoe of being a pyramid scheme. Plaintiffs in the suit allege the company engaged in "misconduct, including unfair business practices, misleading advertising, and breach of contract."[10][11] According to the $1 billion lawsuit, which LuLaRoe argues is baseless and inaccurate, the company allegedly advised its distributors "to borrow money [...] take out credit cards, and some were even asked to sell their breast milk" as ways to buy additional inventory.[12][13]
In January 2018, the National Down Syndrome Society (NDSS), a charity that had previously worked with LuLaRoe, ended its relationship with the company after a top distributor mocked people with mental disabilities during a livestream sale. The NDSS requested that LuLaRoe sever ties with the distributor, but LuLaRoe declined, stating that they accepted the distributor's apology. The video, and LuLaRoe's reaction to it, prompted widespread online criticism.[14][15][16]
In December 2018, in the midst of mounting debt, layoffs, and an exodus of top sellers, LuLaRoe was sued by its chief clothing supplier, Providence Industries, for nearly $49 million. The lawsuit claimed that LuLaRoe was insolvent and had not paid its bills for seven months, and accused founders Mark and DeAnne Stidham of hiding assets in "shell" companies to fund their "lavish lifestyle" and to "hinder, delay, and defraud the creditors."[17][18]
In January 2019, the Washington State Attorney General's Office filed a lawsuit against LuLaRoe, as well as company CEO Mark Stidham and president DeAnne Stidham, alleging that the multilevel marketing company is an illegal "pyramid scheme", making misleading income claims, and encouraging its consultants to focus more on recruitment than selling clothes to customers.[19][20][21] In addition, LuLaRoe's chief clothing supplier, Providence Industries, also filed a lawsuit demanding a seizure of assets.[22] In February 2019, amid hundreds of new complaints totaling 300 cases, the company once again received an "F" rating from the BBB.[23][24] In October 2019, LuLaRoe announced it would be closing its distribution center in Corona, CA, relocating that part of the business to South Carolina, and laying off 167 people.
In November 2019, LuLaRoe filed a countersuit against its former chief supplier, Providence Industries, seeking at least $1 billion in damages.[25][26]
In February 2021, LuLaRoe agreed to pay $4.74 million to settle the Washington lawsuit. The settlement will be distributed to LuLaRoe distributors in Washington state. LuLaRoe denied wrongdoing. The settlement prohibits the company from operating a pyramid scheme and also requires it to publish accurate income disclosures, among other measures to improve transparency.[27][28]
