LuLaRoe Class Action Says Company Operates as a Pyramid Scheme

LuLaRoe, a clothing company known for its fashion leggings, has been hit with another class action, this one alleging the company amounts to a pyramid scheme.

Former LuLaRoe consultants from California allege in their class action lawsuit that the company is conducting a pyramid scheme where each level’s compensation depends on the sales made by the sellers they recruit.

Further, allege the plaintiffs, the number of LuLaRoe sellers saturated the market within a few years and, on top of that, the company often provides unpopular products that consultants are stuck with.

The three consultants allege that they were cajoled into purchasing more than $5,000 in LuLaRoe inventory when they signed up as consultants by promises of fat bonuses; however, they all say they never made their initial investment back.

Further, the former LuLaRoe consultants claim that the bonuses are based on the number of consultants they in turn recruit and not their direct sales. As a result of the poor inventory they received and “endless chain scheme” LuLaRoe promoted to saturate the market with consultants, the plaintiffs say they each had to end their businesses.

“Plaintiffs and tens of thousands of other consultants never even made a profit — they were duped by defendants’ endless chain scheme that only profited a few and only made payments to consultants based on how much product those consultants and their recruits purchased on a regular basis,” alleges the LuLaRoe class action lawsuit.

LuLaRoe has been hit with several class action lawsuits over the past few months. One alleges that the company went back on its promise to buy back unsold inventory from consultants. Other class actions have been filed by LuLaRoe buyers who allege that the quality of the uniquely patterned clothes is poor.

The class action lawsuit alleges that LuLaRoe consultants are pressured to keep as much as $20,000 worth of inventory on hand, even when their garages and basements are packed with brightly colored leggings. LuLaRoe exacerbates the problem by offering prizes or incentives for wholesale inventory purchased by consultants, rather than on clothing actually sold.

“These incentives mean new consultants (at the bottom of the pyramid and in over saturated markets) are aggressively pressured to continue purchasing wholesale inventory even when the inventory they have is not selling, is unlikely to sell, or is piling up in their garage,” contends the LuLaRoe class action lawsuit.

According to the class action lawsuit, in addition to the pyramid scheme, consultants have been forced to take on unpopular inventory because LuLaRoe picks the clothing it sends to the consultant and not the other way around.

The plaintiffs seek to represent a nationwide Class of LuLaRoe consultants starting in 2013 until today. They allege that LuLaRoe’s pyramid scheme violates the federal Racketeer Influenced and Corrupt Organizations Act and California state advertising and business laws.

The plaintiffs are seeking damages as well as an injunction stopping LuLaRoe’s “unfair, unlawful, fraudulent and/or deceptive acts, including, but not limited to, false advertising.”

The plaintiffs are represented by Joshua H. Watson of Arnold Law Firm.

The LuLaRoe Pyramid Scheme Class Action Lawsuit is Berry, et al. v. LuLaRoe LLC, et al., Case No. 5:17-­cv­-02176, in the U.S. District Court for the Central District of California.

UPDATE: The LuLaRoe Pyramid Scheme Class Action Lawsuit was voluntarily dismissed on January 12, 2018.