Great Falls ex-LuLaRoe customer sues clothing MLM company over illegal sales tax collection

Pamela Winkelman is part of a class-action lawsuit filed against LuLaRoe claiming the company’s sales strategy is an “endless chain scheme.”
Jason Wachter,


A Great Falls woman has filed a lawsuit against the clothing company LuLaRoe, a California-headquartered multi-level marketing company.

LuLaRoe is known for bright pattern in limited runs and its “buttery soft” leggings. It’s an MLM, or direct selling business similar to Avon, Scentsy, Younique, Herbalife Nutrition, doTERRA and many others.

However, the buy-in for LuLaRoe consultants is steep, an onboarding package that ran $5,000-$9,000, according to the lawsuit. The basic onboarding package dropped to $3,389 last year.

Also, consultants couldn’t pick the prints they received. Some prints were ugly. Some prints were collectable and prompted “unicorn hunts” from frenzied shoppers.

In the lawsuit filed in district court in Great Falls, LuLaRoe customer Melissa Hill seeks damages for what her attorneys describe as illegally charged sales tax on LuLaRoe purchases she made from consultants in other states.

U.S. Magistrate Judge Jeremiah Lynch recommended this month that LuLaRoe’s motion to dismiss the case be denied. The district judge will use that in considering a ruling.

The lawsuit is a class action suit on behalf of Hill and other Montanans who purchased from LuLaRoe. 

The attorneys on the case come from Western Justice Associates of Bozeman and Carlson Lynch Sweet Kilpela & Carpenter of Pittsburg, Pa.

From at least April 2016 to May 2017, LuLaRoe charged customers in Montana a sale tax, though the state doesn’t have one.

“LuLaRoe knew its collection of taxes in Montana was unlawful, but concealed this fact from consumers, actively misleading them regarding the legality of its practice,” according to the lawsuit.

LuLaRoe’s “unlawful, unjust, deceptive and fraudulent practice” damaged Montana residents by including unauthorized overcharges on purchases, according to the lawsuit, which seeks: damages for the taxes, an accounting to ensure it’s done accurately, punitive costs and attorneys’ fees.

The company’s policies and software meant that consumers were charged the sales taxes of the seller, though they should have been charged by their own locations, according to the lawsuit.

So, a woman in Dutton might watch a live Facebook video sale from a consultant in Louisiana and order a shirt. The company would tack on a 10 percent sales tax, Louisiana’s rate. The law says the buyer’s state’s rate is the rate that should be applied, as in zero for Montana residents.

Receipts included in the suit show $8.95 in sales tax added to three of Hill’s LuLaRoe purchases. According to the suit, she paid nearly $300 in sales tax.

The suit tallied at least 52,000 sales shipped into Montana with a sales tax added from April 2016 through June 1, 2017, when the company got a new software system called “Bless.”

LLR refunded in the amount of $188,697 for sales to Montana. It responded to the lawsuit stating that the court didn’t have the standing to decide the matter and that the refund program was adequate compensation.

The suit claims LuLaRoe’s “remedy” provided no basis for ascertaining what the overcharge was or whether the entire amount was refunded and didn’t take interest or damages into account.

“Indeed, while LuLaRoe alleges that it has refunded the $255,483.35 it overcharged the plaintiff and putative class, LuLaRoe has suffered absolutely no consequence for its knowing and unlawful conduct towards the class because in LuLaRoe’s own words, the refund program made after over a year of LuLaRoe’s deception of its consumers was a “zero-sum game for LuLaRoe,” according to the suit.

Attorneys in the case have records of affected customers’ information. While the individual sums aren’t much money per person, that shouldn’t mean the company can avoid punishment, according to the suit.

Attorneys also filed a class-action suit in February 2017 Pennsylvania on behalf of customers in 11 states accounting for more than $8 million in improperly collected sales tax.

In December 2017, attorneys filed a class-action lawsuit in Pennsylvania on behalf of customers in 11 states, among them Montana, where customers were charged the tax. The court tossed the case in August based on variations among state laws, but lawsuits then followed in Alaska, New York and Montana. 

In Alaska, the judge dismissed the case because LuLaRoe refunded the $225,000 in sales tax collected on Alaskans’ purchases.

LuLaRoe also is facing a Washington state lawsuit alleging the company operated as a pyramid scheme, burdening consultants with debt and unsellable merchandise.

Washington State Attorney General Bob Ferguson, who filed the lawsuit, said in a statement that “LuLaRoe tricked consumers into buying into its pyramid scheme with deceptive claims of high profits and refunds for unsold merchandise, Instead, many Washingtonians lost money and were left with piles of unsold merchandise and broken promises … It’s time to hold LuLaRoe accountable for its deception.”

Prior to July 2017, LuLaRoe consultants received bonuses based not only on how much they sold, but also the merchandise sold by sellers they’d brought into the company. That bonus system violated Washington’s Antipyramid Promotional Scheme law, Ferguson’s complaint claims.

LuLaRoe has long been controversial. In 2017, it faced two lawsuits including a complaint by three California women claiming that LuLaRoe encouraged its sellers to borrow cash and even sell breast milk to purchase clothing that they ultimately couldn’t get customers to buy. Both suits also accused the business of unfair business practices and false advertising.

That year, LuLaRoe got rid of its guarantee to buy back all merchandise that went unsold, leaving consultants on the hook for thousands of dollars in piled up inventory. Amid an outcry by its sellers, LuLaRoe reversed that decision but continued to impose rigid rules around the return of products.

In the past five years, LuLaRoe had assembled a team of 80,000 independent distributors, but it’s estimated 20,000 to 30,000 consultants remain.

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