LuLaRoe is headed for a new level of legal trouble. The company, known for its vibrant print leggings and affordable casualwear, has withstood allegations of defective leggings and faulty clothing. Now, a class action lawsuit names the company as a “pyramid scheme.”
Amber Eck, the lawyer who recently won a $25 million settlement against Trump University for charges related to fraudulent business practices, has taken on the case. The suit names four plaintiffs across the country and seeks to represent “thousands of consultants.” The lawsuit alleges six charges of unlawful, fraudulent, and unfair business practices, advertising, and breach of contract under California law.
LuLaRoe is a multi-level marketing company, which means individual sellers or “consultants” pay for the privilege of selling merchandise to their own friends and social networks. According to CBS, sellers are required to purchase an “onboarding package” of $4,925 to $9,000 worth of inventory. The company also encourages consultants to keep “investing,” aka purchase more inventory, and recommends they have $20,000 worth of merchandise at all times. The lawsuit hinges on the company’s buyback guarantee, which offered consultants the option to return inventory for a full refund and exit the company. The buyback program was reportedly reversed in September, leaving consultants with thousands of dollars of unwanted merchandise on their hands.
Plantiffs in the latest lawsuit allege that the company is set up as a pyramid scheme. “Consultants were encouraged to max-out their credit cards with inventory purchases, all of which would be refunded at 100 percent, plus free shipping, should the consultants decide to stop selling for LuLaRoe,” reads the complaint. The company then abruptly canceled the buyback policy.
Different states have different laws regarding pyramid schemes, including different definitions of what legally constitutes a pyramid scheme. According to Cornell University’s Legal Information Institute, “A pyramid scheme is an unsustainable, illegal business model where investment returns are typically from principals of investments or membership fees instead from the underlying investment gains.”
“We’re focusing on the misrepresentation and breach of contract to the consultants,” Eck explained to Yahoo. “This case is reminiscent of [the Trump University lawsuit. It] wasn’t multi-level marketing, but it was an upsell scheme. This case is reminiscent of that.”
LuLaRoe is facing multiple other class-action lawsuits and an F score from the Better Business Bureau. The first lawsuit, filed in February, alleges that the company charges buyers a trumped-up sales tax even if they live in a jurisdiction that does not tax clothing, reports CBS. The second suit focuses on the merchandise itself—and LuLaRoe’s misleading promotion of it. Customers—including the thousands who have gathered in a closed group on Facebook—complain about the poor quality of the clothes. Both lawsuits are still pending and are now joined by the third.