Judge Rules LuLaRoe Sales Tax Class Action Can Proceed

A sales tax class action lawsuit against LuLaRoe recently survived a dismissal motion after the judge found the claims were valid.

Katie Van and other plaintiffs accused LuLaRoe of violating Alaska law by charging sales tax on purchases. Alaska is rare in that there is no sales tax in the state.

Although LuLaRoe is an online clothing retailer, the plaintiffs argue they cannot be charged sales tax since they made purchases in Alaska.

Recently, U.S. District Judge H. Russel Holland gave Van and other plaintiffs the green light on their claims after he determined the customers could be entitled to damages based on the sales tax they paid. After analyzing Van’s claims that she was financially injured by paying sales tax, the judge wrote that “it is plausible that she has lost property as a result of defendants’ conduct.”

Van filed her LuLaRoe sales tax class action lawsuit in 2018, challenging the online clothing retailer’s practice of charging sales tax in states that do not allow such charges. Allegedly, Van paid $531 in sales tax, an amount she was then unable to use.

Although the company later refunded her, Van argues that she deserves an interest payment based on the time that she wasn’t refunded. In fact, Van argues that the company’s refund program is not nearly enough to satisfy her claims.

“LuLaRoe attempts to frame its refunds as proactive, yet argues that its partial remedy means that it should escape liability for the millions of dollars of interest, statutory and punitive damages imposed by law,” Van wrote in a motion arguing against dismissal.

“Once again, LuLaRoe attempts to shift the cost and consequences of its known system failures (and its decision to knowingly overcharge customers) to its consumers.”

In March 2019, a federal court tossed Van’s claims after determining she hadn’t established a viable injury. However, in June 2020, the Ninth Circuit revived these claims and reversed the previous dismissal.

According to the appeals court, the case was wrongfully dismissed after the lower court determined that interest on sales tax – which came out to $3.76 in interest – was too small to warrant an injury claim.

The appeals court determined Van had the ability to claim injury due to her inability to use the $531 in sales tax that she paid.

Even if this amount was later refunded, the Ninth Circuit court found that the inability to use these funds gave Van’s claims legitimacy.

After the case was remanded back to district court, Judge Holland determined that the claims could continue.

LuLaRoe had tried to persuade the judge to toss the claims once again, arguing that the company can’t provide any relief sought by the plaintiffs because they had already implemented a refund program.

However, Judge Holland rejected these arguments and noted that Van is seeking statutory damages in her LuLaRoe sales tax class action lawsuit.

Under these damages, LuLaRoe could be ordered to pay up to $500 per transaction – relief that could eclipse that offered by the clothing retailer as a part of their refund program.

“At this point, the court cannot conclude that the proposed class action is not a superior method of adjudicating the controversy,” Judge Holland wrote.

Although the sales tax class action lawsuit mostly survived, the court did dismiss claims that LuLaRoe violated Alaska’s Unfair Trade Practices and Consumer Protection Act. The judge gave the plaintiffs leave to amend their claims and try again, but the clothing retailer says that revision is unlikely to save the UTPCPA claim.

“[LuLaRoe] believes the order correctly articulates the heightened pleading requirements under the UTPCPA and identifies the reasons why Ms. Van’s unverified allegations failed to meet those requirements,” company counsel said in a statement to Law360.

“Based on the known evidence, [LuLaRoe] believes Ms. Van will not be able to amend her allegations to cure the noted deficiencies.”

The lawyer also noted that Class certification is unlikely, considering the relatively small amount in controversy.

LuLaRoe’s counsel told Law360 the claims allege only a few thousands dollars in damages, “light years from the $5 million minimum standing requirement for a federal court class action.”

Were you charged sales tax by LuLaRoe despite state laws prohibiting this? Share your experiences in the comment section below.

Van is represented by Bruce Carlson, Kelly K. Iverson and Kevin W. Tucker of Carlson Lynch Sweet Kilpela & Carpenter LLP, and James J. Davis Jr. and Goriune Dudukgian of the Northern Justice Project LLC.

The LuLaRoe Sales Tax Class Action Lawsuit is Katie Van, et al. v. LLR Inc. d/b/a LuLaRoe, et al., Case No. 3:18-cv-00197, in the U.S. District Court for the District of Alaska.

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