LuLaRoe hit with second pyramid scheme class-action
A second pyramid scheme class-action has been filed against LuLaRoe.
Plaintiff Jessica Ponkey filed suit against LuLaRoe in California on March 24th, 2021.
Named defendants in Ponkey’s proposed class-action are LuLaRoe, Lennon Leasing, Mark A. Stidham and DeAnne S. Brady (aka DeAnne Stidham, right with Mark).
The lawsuit alleges that 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.
New recruits are led to “believe that they will be able to sell LuLaRoe’s various clothing items to a retail market.”
The lawsuit claims that up until “at least 2017” however,
LuLaRoe’s consultants’ primary income was derived from their ability to recruit other participants into the LuLaRoe scheme.
This alleged conduct has seen LuLaRoe “generate billions of dollars in revenue” from “approximately 80,000-100,000 consultants”.
Although putting in the effort, Plaintiff, like other LuLaRoe consultants, failed because she was doomed from the start by the LuLaRoe plan that systematically rewarded recruiting consultants over retail sales of the product.
Defendants made material misrepresentations and omissions, including, but not limited to, representing to consultants that as long as they “buy more” LuLaRoe products, they will “sell more” LuLaRoe products, representing that there is nothing to lose because LuLaRoe will honor a full 100% return policy (with free shipping and handling), and omitting that the LuLaRoe quality of product is declining and that the market is saturated, all while providing misleading income statements and retailer maps.
Ponkey claims LuLaRoe’s owners, Mark and DeAnne Stidham, ‘at all times had express knowledge that the LuLaRoe structure was an illegal pyramid scheme’.
Millions were paid to those few at the top (primarily Mark Stidham and Deanne Brady), at the expense of the many at the bottom.
Stidham and Brady have earned hundreds of millions of dollars in profit for themselves on the backs of women who were seeking a legitimate business opportunity where they could earn income while spending more time with their families.
Ponkey states she wouldn’t have joined LuLaRoe had she “known the truth” behind the business.
BehindMLM reviewed LuLaRoe in June 2018. We took issue with the company’s “lucky leggings lottery” business model.
It should also be noted LuLaRoe recently paid $4.75 million to settle pyramid scheme charges filed by the Washington AG’s Office.
Under the proposed class-action, Ponkey seeks to represent
all LuLaRoe Consultants in the United States from January 1, 2013 until the present.
It is estimated that the members of the Class exceed 25,000 individuals.
Questions to be answered through the lawsuit include;
- whether LuLaRoe operated as an endless chain;
- whether LuLaRoe consultants paid money for the right to sell a product and earn recruitment commissions;
- whether factors in FTC v. Amway Corp (1979) were met, including buy back provisions, selling 70% of inventory each month to qualify for commissions and submission of “proof of retail sales made to at least ten different customers”;
- whether LuLaRoe failed to inform its Consultants “they were entering into an illegal scheme where an overwhelming number of participants lose money”;
- whether it was “deceptive to represent to Consultant that if they “buy more” they will “sell more””;
- whether not honoring a promised 100% return policy was fraudulent and unfair;
- whether LuLaRoe acted deceptively and/or unfairly by failing to inform Consultants of a decline in product qualify and improper storage of held stock;
- whether the practice of including only a few popular items in each shipment was deceptive and/or unfair;
- whether omitting a 2017 income disclosure statement and only providing an outdated 2016 statement was deceptive and/or unfair;
- whether LuLaRoe’s conduct constitutes an “unlawful, unfair and/or deceptive trade practice under California state law”;
- whether LuLaRoe’s conduct constitutes “unfair competition and/or false advertising under California state law”; and
- whether LuLaRoe “violated rules regarding seller assisted marketing plans under California law”.
Ponkey’s lawsuit alleges LuLaRoe engaged in
- an endless chain scheme, in violation of California Civil and Penal codes;
- unfair and deceptive business practices, in violation of California Business and Professions Code;
- false advertising, in violation of California Business and Professions Code;
- violations of the California Corporations Code;
- violations of the California Seller Assisted Marketing Plan Act; and
- RICO violations.
Ponkey seeks certification of the class, damages for financial losses, exemplary damages, restitution and disgorgement and an injunction.
The million dollar question here is if, unlike the first one, this class-action sticks.
LuLaRoe managed to dismantle the original class-action, which laid out similar claims, by compelling arbitration against the individual plaintiffs.
The class-action has essentially been abandoned, with all but a few of the plaintiffs having confidentially settled.
On April 16th LuLaRoe and the Stidhams filed a notice of a related case in the original class-action docket.
The related case is the second class-action covered here, and is how I came to know about it.
This suggests the LuLaRoe and the Stidhams might be looking to roll Ponkey into existing arbitration proceedings – effectively killing off the second class-action too.
I’m not 100% sure on the legal specifics behind the move but I’ll continue to monitor both case dockets for updates.
Update 28th July 2021 – LuLaRoe filed a motion to compel arbitration in early June. A hearing on the motion has been scheduled for early August.
Update 12th December 2021 – The case is still slowly progressing to arbitration.
An arbitrator was appointed on December 2nd.
The parties are still in dispute regarding whether arbitration proceedings will constitute “employment arbitration”,
that the Commercial Arbitration Rules should apply as provided by the parties’ agreement, and neither the Employment Arbitration Rules nor the Employment/Workplace Fee Schedule should apply.
LuLaRoe is arguing in the affirmative, Plaintiff Jessica Ponkey is opposed.
I’ll continue to monitor the docket for updates.
Update 26th June 2022 – LuLaRoe prevailed in getting the case dismissed during arbitration proceedings.
This was done on the basis of a one-year statute of limitation clause in LuLaRoe distributor agreements.
Plaintiff Ponkey has appealed the Final Arbitration Award, with a decision on the appeal pending.